Britain tries to freeze Guernsey out of QROPS business

15 December 2011

Guernsey is the principal target of anti-avoidance legislation to be enacted by the UK next April, ostensibly to prevent abuse of a scheme designed to allow British expatriates to move their pension funds abroad.

Britain's QROPS (qualifying registered overseas pensions) scheme was introduced in 2006 to allow non-UK-resident individuals with a UK-based pension fund to move it tax-free to another jurisdiction, under certain conditions. This can have significant tax planning benefits. Specialised providers of QROPS schemes are now operating in many jurisdictions, notably the Crown Dependencies.

But the UK Treasury has decided that the scheme is being abused, for example by pensioners who convert their pension fund in a tax-free lump sum as soon as it is beyond UK jurisdiction. It has already within the past year introduced restrictions on some jurisdictions, including New Zealand.

"The Government has found that QROPS are being marketed extensively as a way of paying amounts or enabling the payment of amounts that are not allowed under UK rules (in particular 100 per cent lump sums) once the UK tax rules no longer apply", said HMRC in a statement. "This is contrary to the policy rationale for allowing transfers of UK tax-relieved pension savings to be made free of UK tax to QROPS."

A draft of the new legislation - to be included in the 2012 Finance Bill - was published in this month's Autumn Statement package. It forces QROPS providers to keep HM Revenue & Customs informed about an individual's pension fund for ten years after it is moved abroad, not five; and sets new conditions that a pension scheme must satisfy in order to qualify.

It also requires individuals who are planning to transfer their pension pot into a QROPS to sign an acknowledgement that tax charges may be due if the rules are breached. HM Revenue & Customs will also have extra powers to demand information from a QROPS provider.

Most significant of all is a new rule requiring pensioners who are not resident in the jurisdiction where their QROPS funds are administered to be taxed at the same rate as residents of that jurisdiction.

This clause appears to be aimed squarely at Guernsey, and to some extent the Isle of Man, whose financial services industries market QROPS products to non-residents on the basis that their pension payments are made free of tax.

The new Finance Bill clause means that these jurisdictions will either have to tax QROPS pension payments to non-residents, or stop taxing their own  residents' pensions. The only exception will be if the pension recipient is living in a jurisdiction that has a double taxation treaty with the QROPS provider's jurisdiction.

Guernsey's financial industry still has three months to persuade the UK government not to impose the new legislation.

 

Sources

HMRC statement

Telegraph

Citywire

Citywire

 

 


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