QROPS
A QROPS aka Qualifying Recognised Overseas Pension Scheme is a pension scheme which allows individuals who have the intention of moving abroad permanently, to transfer their UK pension benefits to overseas schemes that are registered with Her Majesty’s Revenue and Customs (HMRC). Please note however, that it is not possible to transfer state pension provisions.
Before ‘A’ Day (6 April 2006), individuals could only transfer their UK pension to another pension scheme as long as a reciprocal agreement with that jurisdiction was in place by the HMRC.
To read more about taxation and how QROPS transfers are treated in other countries, follow this linke to another great QROPS article.
However, following on from ‘A ‘Day, HMRC have permitted UK pension rights to be transferable. UK residents can transfer pensions to overseas schemes if they intend to move abroad within the next 10 years.
The QROPS scheme can receive transfers from any UK registered pension scheme; this also includes protected rights funds. Transfer values may be taken from UK pension arrangements (not including annuities in payment and occupational pension schemes in payment) even when benefits have already been taken.
Within the first five years of a member no longer being a resident of the UK, overseas pension schemes have to report to HMRC any benefits paid out to the member. Therefore, if overseas pension schemes provide benefits in excess of those permitted in UK pension schemes, then the member is taxed on the excess benefits. This five year mark is a key attraction. HMRC says there are no UK tax charges on benefits that are paid out more than five complete tax years after the member ceases to be resident in the UK. This enables expatriates to receive their pension benefits according to the rules of the country where their pension scheme is established.
UK schemes are no longer required to purchase an annuity, however where an annuity is not purchased, schemes are no longer fully protected from Inheritance Tax (IHT), meaning that if a member dies before age 75, a charge of 35% of the value of the fund may be applied (unless paid on to a surviving spouse, registered civil partner, financial dependant or charity). This also applies to members of a QROPS who have lived outside of the UK for less than five years.
On the other hand, if the same QROPS scheme member has lived outside the UK for more than 5 tax years, there is no tax in Hong Kong for example and only a 7.5% charge in the Isle of Man. In contrast, in the UK the tax rate can jump to 82% when members are older than 75 and are in ASP (Alternatively Secured Pension) due to the combined effects of an Income Tax charge and an Inheritance Tax charge.
QROPS NEWS & DEVELOPMENTS
In May 2008, HMRC removed approval for the jurisdiction of Singapore. HMRC would not comment as to why Singapore based schemes are no longer on the approved list, however it would seem that pension busting/washing through benefits was a concern. HMRC has also heavily caveated its approved scheme list making it clear that just because authorisation has been given, no guarantee can be given in respect of the scheme as to whether it would or would not be a QROPS if it was fully investigated.
In January 2009 it was made aware of difficulties in establishing new schemes in HK as it would seem that HMRC having looked at HK pension legislation have determined that HK schemes cannot meet the requirements for approval. In short it would seem HMRC feel that for any scheme to meet the equivalent UK standards, schemes must tax contributions on the way in or benefits on the way out.
As HK schemes tax neither contributions nor benefits taken, HMRC has concerns over the validity of the jurisdiction. At this point in time (April 2009) HMRC still list HK as an approved jurisdiction. Some New Zealand schemes are apparently marketing a pension busting scheme whereby a scheme members get everything after 5 years and have attracted the eye of HMRC.
It is anticipated that the Isle of Man Treasury will reduce the tax rate for non-IOM residents receiving QROPS income to 0%. This will be welcome news if it happens.
To find out more about the latest QROPS information and details, follow the following link to the best advisory service about QROPS.
