Why did HMRC decide to change the HMRC QROPS requirements?
In light of the increased pension flexibilities introduced in April 2015, HMRC decided to review the conditions for HMRC QROPS. An overseas arrangement has to satisfy if it is to be a qualifying arrangement. From April 2015, retirement savers over age 55, can opt to withdraw cash from certain pension arrangements as and when they like. Where a pension arrangement does not allow savers to withdraw their pension benefits as cash. There is usually the option to the transfer their benefits to an arrangement which does.
UK pension savers can opt to take up to 25% (some are entitled to higher amounts if they have any protected tax-free cash) of their pension benefits as a tax-free lump sum (with the balance taxed at their marginal rate) . The minimum age at which they can take their pension benefits (in ordinary health) is age 55. However, in certain jurisdictions, savers can take a tax-free lump sum of up to 30% . The balance would then be taxed at the basic rate in the country where they are tax resident (which could be 0%). Some overseas arrangements also allow benefits to be taken earlier than age 55.
Furthermore, HMRC recently lost a legal case in 2013 where they had tried to reclaim tax from a previous QROPS arrangement as its members had, in their view, broken the ‘Qualifying’ rule. Part of the reason for their losing the case was the use of the word ‘Qualifying’ in the title of the list. The Courts felt that this was a reasonably strong endorsement of the arrangement.
What has changed?
From April 2015, HMRC has moved to a ‘Recognised Overseas Pension Scheme’ (ROPS) list in an attempt to put the responsibility on pension scheme trustees to verify that the arrangement is one which would be deemed ‘Qualifying’. In fact their website clearly states:
“HMRC can’t guarantee these are Recognised Overseas Pension Schemes (ROPS) or that any transfers to them will be free of UK tax. It is your responsibility to find out if you have to pay tax on any transfer of pension savings”.
Trustees now face a risk that a transfer to what is now a ROPS arrangement could, at some point, be deemed to not meet the ROPS requirement, either because they fail a part of the criteria at some point in the future. This potentially puts the transferring scheme at risk of a ‘scheme sanction charge’ as well as the scheme member at risk of an unbudgeted tax liability.
Due diligence on overseas scheme transfers is costly, difficult, time consuming and cannot be guaranteed to be complete. There have been mixed views from legal advisors on what pension scheme trustees should do and some have suspended all transfers to overseas pension arrangements pending advice from their lawyers, posing another unbudgeted expense.
How is Harrison Brook helping expat clients?
On receipt of a request to transfer to an overseas pension arrangement, we provide the necessary discharge forms. Where individuals and their overseas receiving scheme must complete, in order to evidence that their chosen arrangement is ‘Qualifying’ for HMRC’s purposes.
Only when we have undertaken our due diligence and have received all of the required forms do we organise payment to the new arrangement.
If you would like to know more about this or how we can assist you, please let us know.
Are there other options apart from QROPS?
Part of the process that we undertake will look at the overall picture of each client. We will explore each option and the pros and cons of each possible solution.
Experience has shown that many clients are advised to take no action at all. This gives peace of mind to our clients. This in turn leads may expats to recommend our services to others in a similar situation as their own. As no client situation is exactly the same, it can mean that referred clients can benefit in a transfer to another solution.
To see if we can help you gain peace of mind and the right solution for you, please get in touch.
The information contained herein is for informational purposes only which is subject to change and should not be relied upon. You should seek advice from a professional adviser before embarking on any financial planning activity.