Treasury closes Qrops loophole
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The Treasury is closing a loophole for Qrops to stop UK residents avoiding tax on their pensions.
Exchequer secretary to the Treasury David Gauke says new measures will be included in the Finance Bill to take effect from today, to prevent UK residents transferring their pension to a Qrops and then taking an income in the UK.
Gauke says: “The Government has set out a clear strategy on preventing tax avoidance. We will not hesitate to take action to stop those who seek to take unfair advantage of unintended tax loopholes. Today’s measure demonstrates our commitment to act quickly to close these.”
HMRC says that due to a double taxation agreement that came into effect from today, there is a specific issue with QROPS schemes registered in Hong Kong.
An HMRC spokesman says: “A particular issues arises in relation to the UK’s double taxation agreement with Hong Kong which takes effect from today. We have become aware that it has been suggested to some individuals that they could take advantage of this loophole.”
Normally when using a Qrops, income tax is paid on pensions income at the rate which applies in the jurisdiction that the Qrops is registered in, rather than at the rate under which the assets were accumulated. A UK resident who retires overseas to a territory with a lower income tax rate would receive tax relief on their UK contributions but receive their pension as income with a lower rate of tax.
However, HMRC says the new clause will allow UK income tax to be levied on payments from a Qrops where:
· the payment arises in the other territory;
· it is received by an individual resident of the United Kingdom;
· the pension savings in respect of which the pension or other similar remuneration is paid have been transferred to a pension scheme in the other territory; and
· the main purpose or one of the main purposes of any person concerned with the transfer of pension savings in respect of which the payment is made was to take advantage of the double taxation arrangement in respect of that payment by means of that transfer.
In the event that tax is paid in the other jurisdiction, appropriate credit will be available against the UK tax chargeable.
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Readers' comments (4)
Julian Stevens | 6 Apr 2011 7:03 pm
If tax rates were lower, then people would be less bothered about trying to evade or avoid paying the taxes that the rules say they should.
Quite some years ago, Hong Kong lowered its tax rates and found, as a result, that gross tax revenues actually increased. There's a lesson there that the UK government would be well advised to take on board.
Then again, so much of what we pay in taxes is wasted in one way or another that the whole edifice is something of a farce. Hardly any VAT, for example, is spent on anything other than actually collecting it. It's just a job creation scheme funded by the rest of us.
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Ben | 7 Apr 2011 10:07 am
This is a well-known economics concept - if tax rates are 0%, tax revenue is £0. If tax rates are 100%, tax revenue is £0 (as no-one will work for free).
The revenue curve goes up from £0 and back down again as tax rates increase...the trick is to work out whether you are on the upswing or the downswing in terms of whether increasing tax rates will increase revenue or not.
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Malcolm | 7 Apr 2011 10:15 am
Julian - your point regarding Hong Kong is an excellent one. Unfortunately the likelihood of something like that ever happening in the UK is almost zero despite the clear economic sense in making it happen. Politicians are too weak and interested in short-termism and self-survival to tread that path.
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Sterto | 7 Apr 2011 10:52 am
This whole QROPS industry is a shambles it needs cleaning up, most of the firms that offer these services are based outside the UK. Their so called advisers are not even close to the standard of pension transfer specialist in the UK and they take massive commissions for the so called 'advice'.
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