HM Revenue & Customs’ officials must be pulling their hair out at the attempts of jurisdictions to stay one step ahead of this April’s changes to the qualified recognised overseas pension scheme regulations. The ease with which Guernsey has come up with a solution to the abolition of expat-only Qrops surely means it is only a matter of time before the Revenue has another go at trying to shut the door.
HMRC’s new rules, coming in from April, will reduce some questionable Qrops transfer behaviour. The new 10-year reporting requirement will mean those wanting to use Qrops arrangements to escape paying tax legitimately due will now have to wait twice as long to do so.
The special requirement on New Zealand Qrops, that at least 70 per cent of the fund must be used to buy a pension income, rather than allow 100 per cent to be taken as cash as can be done at present, closes another door to those looking to liberate their pension cash.
But the requirement that Qrops jurisdictions desist from offering one scheme to expats and another to local residents looks to have been circumnavigated already by a simple bit of deft legal footwork.
Take the case of Guernsey. Under current rules, an expat with a Guernsey Qrops will pay no tax on pension income, while a pensioner resident in Guernsey will pay 20 per cent. Understandably keen to help its Qrops industry to flourish, the Guernsey government has got round HMRC’s requirement to have schemes open to all – clearly designed to make Qrops generally less attractive – by creating a new set of pension rules to run in parallel with the existing one.
From April, both types of Guernsey pension will be open to all but it is obvious that expats will use the new one, which offers no tax relief on the way in, but has no tax on income on the way out. Guernsey residents will stick with the old one, benefiting from tax relief on the way in but taxed on the way out.
Guernsey, and doubtless other jurisdictions who may do something similar, will be able to keep the third-country Qrops option alive.
But third-country Qrops are something HMRC is not happy about, which is why we could see it coming back to try and tighten things again.
There are legitimate reasons why an individual would want to transfer their pension to a provider based in a country other than the one they are retiring to. If you are moving to see out your days in Honduras or Thailand, for example, you may want to know your savings are held in a financial services institution based in a secure jurisdiction.
But in the vast majority of cases, UK retirees are moving to countries such as France, Spain, Italy, the US, Australia and South Africa, which all have robust financial systems.
If an individual is planning to become resident in any of these countries, and pay tax there, then what is wrong with moving his or her pension to a scheme in that country, HMRC might justifiably ask?
Qrops is in the sights of HMRC, as demonstrated this month when the Appeal Court found it was within its rights to deregister Panthera’s Singapore recognised overseas self-invested international pension retirement trust as a Qrops scheme. The judge found the scheme was not a Qrops because it was not clear it was open to Singapore residents to join it. That judgment means those unfortunate enough to have been advised to go into that scheme face the unpleasant possibility of an unauthorised payment charge.
There is no suggesting that those in third-party Qrops arrangements face anywhere near such a drastic fate. What we may see is Qrops providers having to change their structure again if and when HMRC tries to mend the hole in the net again.
John Greenwood is editor of Corporate Adviser