Make sure you're aware of changes to QROPS legislation
QROPS (Qualifying Recognised Overseas Pension Schemes) are set to undergo the most radical reforms since they were introduced in 2006. The changes, which come into effect on April 6th, will mean some existing schemes will not qualify for benefits.
Tax on pensions is usually only levied in the country where the pension holder resides. Under the new legislation the schemes that continue will also have to pay the rate applicable in the country where the pension is held.
This double-taxation situation could be improved by tax treaties, but crown dependencies are worried people will withdraw from the scheme as the tax breaks become less beneficial.
The main jurisdictions that will be affected are Guernsey, the Isle of Man and any other areas that taxes residents on a different scale to non-residents. The change that is causing the most upset is “condition 4”, which requires equal treatment for QROPS income for residents and non-residents.
The Chief Executive of Guernsey Finance, Peter Niven, explained most of the new changes are aimed at “eliminating abuse in parts of the overseas pension system.”
There have been cases of mis-selling seen in the jurisdictions of Hong Kong and New Zealand but Guernsey has a clean QROPS record with the UK tax authority. Consequently Guernsey’s government is protesting against the changes, which they see as overly controlling.
Scheme which cannot comply with the new rules by April 6th will be forced to de-register their QROPS which would have a significant affect on members. For expats with money currently in QROPS they are advised to seek independent financial advice as soon as possible.
Just to clarify this a little.
HMRC are not saying that QROPS pensions must be taxed in the jurisdiction where the scheme is established – only that both resident and non-resident members of the scheme must treated equally for tax purposes. Until now Guernsey withheld income tax for Guernsey resident members of a QROPS, while non-Guernsey residents received their income tax free. Guernsey is amending its own pensions legislation in such a way that neither resident or non-resident scheme members pay any Guernsey tax on the distribution of their pension income, Guernsey residents will now get tax free income too. Existing Guernsey QROPS will be able to switch over to this new pensions regime thus remaining fully compliant with HMRC’s requirements.
Not strictly correct. After 5 years of being non-UK tax resident, the QROPS you have joined is no longer required to report to HMRC any withdrawals made from the scheme by you. However, strictly speaking HMRC intention is that the QROPS funds are intended for retirement & it remains a (slight) possibility if that HMRC gets wind of QROPS holders trust busting & withdrawing funds prior to retirement age, they may retrospectively withdraw approval for any scheme at which stage HMRC may chase people for tax, even if you personally have not withdrawn anything. Somewhat of a grey area this