Almost a year on from changes to the QROPS rules, Rachael Griffin, head of technical marketing at Skandia, examines how the product landscape has changed.
Qualifying registered overseas pension schemes (QROPS) have been a hot topic in the international pension arena. In 2006, changes in legislation made it easier for clients with UK pension schemes to transfer them overseas. This, in turn, led to the development of a QROPS industry and an increase in UK pension transfers abroad – estimated to be £467m in 2009/2010 (AJ Bell).
In December 2011, HMRC announced a number of changes that would firm up the rules and ensure that they work as it had originally intended. Following consultation, these came into effect on the 6 April 2012.
The new rules included a requirement that clients sign an acknowledgment they may be subject to tax charges if QROPS rules are breached. Additionally, QROPS providers must report back to HMRC on payments made from pension funds for ten years from the date the pension is transferred overseas, in contrast to previous stipulations to report for the initial five years from the time the client leaves the UK.
QROPS: What you need to know
One of the most controversial amendments was that the same tax rules must apply to resident and non-resident members alike. Many of the leading QROPS jurisdictions at this time were treating resident and non-resident members differently for tax purposes and this was seen by many as one of the key advantages of using a particular QROPS jurisdiction. The introduction of this new rule, in particular, led to Guernsey falling from the top spot as the QROPS jurisdiction of choice.
This has resulted in a broadening of the jurisdictions that are now utilised for QROPS, with the Isle of Man, Malta and Gibraltar currently being among the most favoured.
It seems that financial advisers are now well and truly embracing the new QROPS landscape, with 40% of those advising on QROPS expecting to write just as many cases over the next 12 months, while a significant 52% anticipate to write more.
The draft Finance Bill 2013 includes powers allowing HMRC to utilise primary legislation, and take action in respect of QROPS providers/jurisdictions where there is a mismatch between HMRC’s original intent for the law and practice. An example of this includes bringing into alignment the reporting requirements between current and former QROPS providers, where the latter are required to confirm every five years that they still meet the QROPS requirements.
Benefits for your clients
Without a doubt however, for the right clients, QROPS continue to offer valuable benefits – for example:
Income tax: Transferring to a QROPS allows the benefit payments to be taxed at the local income tax rate of the country of residence (or QROPS jurisdiction), possibly at a lower rate than the UK income tax rate.
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