As expected, last week’s Budget was light on financial services content, leaving the Treasury’s accompanying Red Book much thinner than usual.
A sigh of relief went around my office when we realised pension taxation would be left alone, as it would have been an easy target to ensure a neutral Budget. We have seen so much change to pensions over the last few years that a respite is welcome.
That said, there was big news concerning qualifying recognised overseas pension schemes. Qrops might appear to look like a complex overseas tax evasion scheme but they are not.
The Qrops programme was part of UK legislation launched on 6 April 2006 as a result of European Union human rights requirements with regards to freedom of capital movement.
It is an overseas pension scheme that can receive transfers of UK pension benefits and which meets HM Revenue & Customs rules.
The biggest advantage of a Qrops is that you do not pay UK tax on your pension income if you live overseas.
However, their use makes little sense now following the announcement that transfers requested on or after 9 March will be taxable unless, from the point of transfer, both the individual and the pension savings are in the same country, both are within the EEA or the Qrops is provided by the individual’s employer. The tax charge is a considerable 25 per cent.
Meanwhile, advisers will also need to be aware of the new regime for promoters of tax avoidance schemes. The Government is to introduce a new penalty for those who have enabled another person or business to use a tax avoidance arrangement that is later defeated by HMRC. It will also remove the defence of having relied on non-independent advice as taking reasonable care when considering penalties.
There have been many high profile cases of celebrities being caught out using tax avoidance schemes. For example, Take That’s Gary Barlow was involved in two partnerships styled as music industry investment schemes, and had to pay an unexpected £20m tax bill following an HMRC ruling. There were similar stories for comedian Jimmy Carr and radio DJ Chris Moyles.
Now, advisers recommending such schemes will have to pay out a financial penalty too (although this punishment is not as strict as in the US, where advisers can be jailed for recommending uncompliant tax avoidance schemes).
Pension specialists do not need to acquaint themselves with too much from the Budget. However, the announcement on dividend tax allowance will need to be understood and applied to planning for business owners.
With Chancellor Philip Hammond admitting to breaking election promises, now is the time for advisers to help business clients sort out what they need to be tax-efficient and future-proof. The Budget may have been light but the need for quality advice continues unabated.
Kim North is managing director at Technology & Technical