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HMRC toughens up on overseas pensions reporting

David Smith

HMRC has unveiled new reporting requirements for overseas pensions, including Qualifying Recognised Overseas Pension Schemes (QROPS). Managers of schemes that are no longer classed as QROPS will need to report any information changes or transfers into or out of the schemes to HMRC.

The draft QROPS regulations and guidance were published in May, and will affect schemes that were de-listed following changes made by HMRC last year. Those changes meant that QROPS providers were required to treat residents and non-residents in the same way for tax purposes. They also needed to report all new member benefit payments for a span of ten years from the member’s joining date.

Public service pension schemes, or schemes set up by international organisations, will no longer have to satisfy the benefits tax relief test in order to be classed as a recognised overseas pension scheme (ROPS). HMRC may now exclude ROPS from QROPS if:

  • There is no scheme manager; or
  • There is a significant failure to comply with the reporting requirements; or
  • Materially incorrect information is reported; or
  • False declarations have been made.

Scheme managers will be required to re-notify their ROPS status to HMRC at certain intervals, usually once every five years, as of 1 April 2015. HMRC has the right to exclude schemes from QROPS if they fail to re-notify their ROPS, but this will not happen automatically.

QROPS status may be renewed up to six months before the renewal date, and the obligation rests with the scheme manager to ensure this happens because HMRC is not required to issue reminders. Any transfers made to a ROPS after the exclusion date will be treated as unauthorised transfers.

QROPS will be subject to more detailed reporting requirements, although these will only apply to payments made from the date these new regulations come into force.

Former QROPS will now be required to report payments from the scheme and respond to HMRC’s requests for information within the same timelines as QROPS. They will also have to report changes or corrections to information as if the scheme were still a QROPS. Failure to make these reports within the set timescales may lead to penalties. The proposed reporting requirements for information changes will not apply where there are no ‘relevant transfer funds’ under the scheme, or where the transfer was made more than ten years ago and the member is not UK resident, nor has been at any time in any of the previous five tax years.

On Royal Assent of the 2013 Finance Bill, HMRC will be able to issue information notices to third parties without prior consent from a Tribunal or taxpayer when seeking information relating to a QROPS, a former QROPS, or annuities purchased with funds held by a QROPS or former QROPS. These changes cover QROPS and all former QROPS.


HMRC excludes transactional discretionary fees from VAT

Samuel Dale

HMRC has confirmed that transactional fees for discretionary management services will not need to include VAT, following last year’s landmark European Court of Justice (ECJ) judgment. The case involved Deutsche Bank’s discretionary services and whether VAT should be charged for ongoing services and on annual management fees.

The ECJ recommended  all elements of discretionary management services, including dealing fees and commission, should be subject to VAT, leading HMRC to state it would issue new guidance on the matter. The judgment means portfolio management services with an annual or periodic management fee must pay VAT.

But HMRC confirmed in late June that an exemption will apply to some services, such as fees charged strictly on a transaction by transaction basis when the manager has no direct link to the execution of the transaction. The change will come into force on 1 December this year.

HMRC states: “As a result of the judgment, it is clear that fees charged by portfolio managers on an annual or other periodic basis for the purchase and sale of securities can no longer be treated as exempt from VAT, regardless of whether or not a separate charge is made.

“However, the ECJ in Deutsche Bank only considered the VAT position of periodic fees charged on a flat fee basis where there was no direct link to the transactions being executed. Where, therefore, fees are charged strictly on a transaction by transaction basis (that is, per purchase or sale of investments) exemption will continue to apply.”

HMRC says portfolio management services differ from other financial advisory services because there is an ongoing commitment to monitor and manage an individual client’s investment portfolio to formulate investment decisions or recommendations.

It says portfolio services should also be distinguished from investment fund management services where VAT exemption is dependent upon the nature of the fund being managed. Advisers had been left confused about the “grey area” of whether they should charge VAT for ongoing services. However, HMRC confirmed last October that ongoing advice services would be exempt of VAT, as long as periodic reviews were agreed at outset.


Spotlight on estate planning issues − wills and trusts

John Housden

Wills and will writing are not normally in the news, but there has been a focus on them recently. Earlier this year, the Legal Services Board (LSB) recommended that the Lord Chancellor should amend the list of reserved legal activities to include will-writing activities. The Lord Chancellor, Chris Grayling, had 90 days to decide whether or not to accept the proposal, which was supported by the Law Society. Just before the deadline he announced that there would be no change, noting that the LSB’s report “did not adequately demonstrate that reservation is the best solution.”

Meanwhile HMRC has issued a new consultation document on simplifying periodic and exit charges from trusts, building on an initial paper published a little under a year ago. The new consultation makes a number of radical proposals, including ignoring the settlor’s pre-trust lifetime transfers, splitting a single nil rate band across all of the settlor’s relevant property trusts and applying a flat rate 6% periodic charge. The single nil rate band approach would sink the tried-and-tested Rysaffe planning strategy.

HMRC has also ‘substantially rewritten’ the pensions section of the IHT manual “to reflect [its] current thinking and practice”.

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