QROPS Business as usual

2/28/2012

 
_The UK tax man has closed the door on consultation over new QROPS rules aimed at
stamping out abuse in some jurisdictions.

Panic has gripped providers and advisers in some QROPs jurisdictions since the
proposed changes were announced before Christmas.

The reality is some providers may have to shut up shop because their products will
not stand the test of the new rules - but anyone who has already transferred a UK pension pot offshore does not have to worry about their retirement
savings.

In the interests of fairness, HM Revenue and Customs is not adopting retrospective
legislation, so any funds already in a QROPs when the new rules start on April 6
are safe and no penalties or other charges will be imposed by the tax
man.
 
The industry is speculating wildly over the likely pension jurisdiction winners and
losers, but the truth is no one knows at the moment, as behind-the-scenes work
arounds are hotly in smoke-filled rooms.

Guernsey, the QROPS destination of choice of many third party pension savers has already come up with a plan to change the island’s pension rules to match the QROPs
proposals. The Channel Island’s parliament is ready to rubber stamp them in March.

The new pension regime on Guernsey beats the biggest stumbling block for most QROPS
jurisdictions - how to equalise tax on payments for residents and non-residents.
 
At a swipe, Guernsey has resolved the problem by scrapping tax on pension payments
for everyone. Other jurisdictions may not be so flexible in changing their tax
laws in time.

Malta and the Isle of Man are likely to be QROPS winners as well -the George Cross
island is in the European Union and has tough pension regulation to give confidence to HMRC that QROPS providers are playing by the rules.

The IoM is not in the EU, but has a respected financial standing and a long-standing
positive relationship with the UK tax authorities.

New Zealand is another matter. NZ QROPS are seen by the industry as short-term
solutions for early encashment - which puts them fairly in the sights of HMRC’s
tax avoidance task force.

Whatever happens from April 6, QROPS will continue to offer a solid offshore investment advantage to UK ex pats. 

The choice of QROPS offshore centre changing is a lesser blow for investors than providers and advisers who face losing their cash flow overnight while playing by stricter rules.



QROPS fund transfer tax treatment

9/26/2011

 
The rules for transferring a UK pension fund to a QROPS offshore pension are specially written to make sure no tax or other penalties apply.

So, shifting cash from one or more UK pension funds to consolidate the money in a single QROPS pension triggers no tax charges – providing the pensions schemes swapping the money are both registered with the taxman.

The transfer between the schemes is not a contribution, so tax relief is not added to the QROPS or deducted from the funds that are switched.

This is important for many pension savers because it means any contributions in to a UK pension attracted tax relief that increased their retirement savings remains in the fund when transferred out of the UK in to a QROPS pension.

This rule recognises that the contributions already made met the rules for receiving tax relief and the transfer is merely relocating where the funds are held and not a reconsideration of their eligibility for tax relief.

Pension fund transfer values

The value of the transfer fund is part of the annual allowance calculation for the year in which the transfer takes place.

Transfer values are a key point to watch in any pension transfer – whether between UK schemes or offshore.

Anyone contemplating a QROPS transfer should request a transfer value calculation from a UK pension provider before starting the transfer process. This calculation fixes the amount available to move offshore and lays out any charges involved.

In most cases the transfer value will be less that the pension fund value.

QROPS transfers that need careful consideration

In most cases, the transfer fund and the value of any other assets switched in the pension input period are calculated at market value at the date of transfer.

This includes defined benefit schemes, even though the question rarely arises because defined benefit schemes pay index-linked benefits that are lost on a transfer of funds.

A transfer to a QROPS is not generally a benefit crystallisation event for a saver’s lifetime allowance.

Don’t include the UK state pension in any transfer calculations - technically, it’s not a registered pension scheme and only fund switches between registered schemes are allowed.