The Isle of Man and Guernsey look set to have to make changes to their pension rules after new Qrops guidance was accidentally posted on HMRC’s website this week.
The IoM’s Association of Pension Scheme Providers has been looking at changes to the island’s 50c schemes which are used as Qrops because they could fall foul of a rule known as ’Condition 4’. This requires any tax benefits to be available to residents and non-residents but schemes operating under 50c pay benefits out to non-residents tax free while it charges IoM residents local tax rates.
It will also mean rule changes for Guernsey which has in the past resisted the imposition of ’Condition 4’.
The guidance, obtained by International Adviser, confirms ’Condition 4’ of the tax recognition requirements remain in the rules though it has been moved to different section. An HMRC spokesman has confirmed the guidance is an “element” of a package of documents set to be published around the final rules next week.
The rules, set to come into force on April 6 could still be changed ahead of final publication.
Last week, IoM providers said they was considering a number of options in dealing with Condition 4, but APSP chairman Stuart Clifford would not go into detail about what they were.
Reacting to the accidental publishing of guidance, he says: “It was released in error so it cannot be taken as the final rules and anyway it is only guidance and that is not always the same as the final rules. We want to see the real deal before doing anything.”
There had been fears HMRC would end Qrops paying out tax-free lump sums but the guidance suggests this will not happen as long as schemes ringfence 70 per cent of the value of funds transferred into them for retirement income. This means the part of 50c which allows any assets a member subsequently put into their Qrops to be included in the tax-free lump sum can continue.
The document also suggests the final rules will impose a requirement on Qrops to report all benefits paid out for ten years after a member joins a scheme. Monfort International managing director Geraint Davies says: “This will effectively open up every Qrops ever to scrutiny from HMRC.”