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10 Reasons to use a QROPS. Facts and Myths, Leaving UK Pension Legislation Behind (8)


QROPS - Myths

Leaving the UK Pension Behind- After a short break over Christmas, in our “QROPS – fact or myth” series, we are focusing on the often cited reason “Leaving UK Pension Legislation Behind” for considering a QROPS.  There are lots of websites that target expats encouraging them to transfer their UK pensions offshore. Every week since October, we have looked at the most popular reasons given, often cited as 10 Reasons to transfer to a QROPS by overseas websites. How many of these reasons for moving to QROPS are valid?

This is our eighth of ten articles, and today we focus on the extensive use of QROPS as advertised in order to offer freedom by “Leaving UK Pension Legislation Behind”.

The key points are when transferring (and often ignored overseas):-

  • Reporting information about your pension to HMRC does not cease when you and your pension leave the UK.
  • You could be liable for up to 55% tax on the whole pension fund, even though an expat, if something goes wrong- this is payable to HMRC, and has already happened in the past several times. This is not leaving UK pension legislation behind
  • Trustees overseas have, up to now, often not been regulated, and therefore able to have avoided scrutiny by HMRC in the past. This has changed with the budget announcement in December 2016.
  • QROPS rules can be back-dated.

In essence, the overseas websites are saying that by “Leaving UK Pension Legislation Behind”, and moving to an overseas “approved” ROPS, somehow the pension will no longer be affected by changes to UK pension legislation. In practice, this may not be the case. Overseas advisers rarely accept responsibility and so there is no comeback when the balloon goes up.

HMRC QROPS Approval

Let’s put this point to bed at the start, QROPS ( ROPS ) are not approved by HMRC.

HMRC merely recognises the schemes on a self-certifying basis and allows them to remain as QROPS provided they follow the rules. At a later date, after transfer, HMRC do reserve the right to remove QROPS from the list and change how QROPS function.

The rules are stipulated by HMRC in the UK, and are subject to change. An adverse effect of this has been the removal of certain jurisdictions from the recognised list, without notice, affecting pension holders in those territories. ( More recently in Australia, France, Italy and Canada and over the years including Guernsey, Singapore and tighter restrictions on New Zealand ).

This is not exactly leaving UK Pension Legislation Behind!

Removal of QROPS status.

What happens if someone transfer to a QROPS , thus “Leaving UK Pension Legislation Behind”, but the scheme is subsequently removed from the QROPS list as HMRC decide that it does not comply with current UK HMRC requirements?

Please note that the word current is the key, as current rules are those that apply “now” not when the transfer was done.

HMRC say- if a QROPS ceases to be a recognised overseas pension scheme after it is successfully registered as a QROPS, future transfers from a registered UK pension scheme would be subject to unauthorised payment charges

An unauthorised payment charge can be a hefty 55% of the fund- paid to HMRC in the UK.

What is reported to HMRC?

Once a transfer takes place the following reporting to HMRC applies –

The QROPS trustee provider will need to report the following:

All payments and transfers from the QROPS within 90 days if the scheme member either:

  • is a UK resident or has been a UK resident in the previous 5 tax years
  • first transferred their pension savings into your scheme in the last 10 years
  • (The 5 year rule is expected to be extended from April 2017, and the second rule is under review).

Further, the December budget announced that in order for jurisdictions to be able to accept UK pension transfers moving forward with flexibility rules then the trustees would have to be regulated thus impacting on pension transfers from the past as well as the future.

Summary

QROPS have to follow significant reporting rules, HMRC has the ability to tax non-UK individuals if the status is removed and the latest rule changes enforce trustee regulation overseas. Given all of that, then there needs to be a more robust and genuine reason for a transfer than just “Leaving UK Pension Legislation Behind”.

HMRC have a long arm !

So, is this a fact or myth?  Well, it could be a myth-

  • There is no escape from HMRC for 10 years after the transfer.
  • The removal of ROPS status could end up costing a whopping 55%
  • Those with UK beneficiaries will need advice as death could bring the funds back under the HMRC microscope.

For those that return to the UK, despite their pensions being offshore, their pension will be treated for tax in the UK as if it had never left.

This is the eighth article about 10 Reasons to use a QROPS- the facts and the myths and we will be publishing more soon

The views expressed in this article are not to be construed as personal advice. You should contact a qualified and ideally regulated adviser in order to obtain up to date personal advice with regard to your own personal circumstances. If you do not then you are acting under your own authority and deemed “execution only”. The author does not except any liability for people acting without personalised advice, who base a decision on views expressed in this generic article. Where this article is dated then it is based on legislation as of the date. Legislation changes but articles are rarely updated, although sometimes a new article is written; so, please check for later articles or changes in legislation on official government websites, as this article should not be relied on in isolation.

 

This article was published in 10th January 2017

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