QROPS Budget 2017- Just announced on HMRC’s website
“As announced at Spring Budget 2017, the government will legislate in Finance Bill 2017 to apply a 25% tax charge to pension transfers made to QROPS. Exceptions will be made to the charge, allowing transfers to be made tax free where people have a genuine need to transfer their pension, where:
- both the individual and the pension scheme are in countries within the European Economic Area (EEA) or
- if outside the EEA, both the individual and the pension scheme are in the same country, or
- the QROPS is an occupational pension scheme provided by the individual’s employer
If the individual’s circumstances change within 5 tax years of the transfer, the tax treatment of the transfer will be reconsidered. The changes will take effect for transfers requested on or after 9 March 2017.
The government will also legislate in Finance Bill 2017 to apply UK tax rules to payments from funds that have had UK tax relief and have been transferred, on or after 6 April 2017, to a qualifying recognised overseas pension scheme (QROPS). UK tax rules will apply to any payments made in the first 5 full tax years following the transfer, regardless of whether the individual is or has been UK resident in that period.
The Qualifying recognised overseas pension schemes: charge on transfers TIIN was published on 8 March 2017.”
Our View on QROPS Budget 2017
The QROPS Budget 2017 rule marks the end of non-EEA pension transfers in most cases with a few exceptions ( Australia and New Zealand retirees for example ).
Our concerns remain as to the term “genuine”. Should not all QROPS transfers be genuine?
James Pearcy-Caldwell has provided several quotes to journalists today, “With regard to HMRC mentioning “genuine” this is a warning shot that they view QROPS as potential tax avoidance. Under GAAR(General Anti-Avoidance Rules), as has been proven again and again in the last few years, that means that previous QROPS transfers could be challenged by HMRC possibly through the courts where they feel it was tax avoidance rather than “genuine”. The devil will be in the detail.”
Further, HMRC has suggested there is room for them to apply tax within 5 years, as well as adjust tax if the exceptions become valid within 5 years.
In an interview earlier today, James Pearcy-Caldwell told Kirsten Hastings at International Adviser, “Without looking at the finer details that will no doubt become more apparent in the coming days, it is clear that QROPS will no longer be a viable option for many outside of the EU – with a few exceptions.”
“If you consider previous rule changes and this new announcement, Qrops are now very much a second class option compared to UK pensions.”
It is essential that people living outside the UK, and especially outside the EU “should only take advice from UK regulated IFAs that work with a local adviser in the country of residence of the client and now the Qrops”. In essence if you live in places such as South Africa or the USA (just two examples) then your advisers should be UK regulated and working with locally regulated advisers in South Africa or the USA. We see it as dangerous if this is not the case as non-regulated advisers are unlikely to be covered for advice they offer, not subject to regulation and are unlikely to be specialists or knowledgeable.
UK Pensions are king again?
For most with UK pensions, a UK solution will remain to be the most viable option as we have stated for some years now in the Aisa Group and within TailorMade Pensions.
Remember too, that there is a proposal to remove QROPS from the list of the Right to Statutory Transfer too.
We will update this as we digest the news about QROPS Budget 2017.
Updates on QROPS Budget 2017 :
QROPS outside the EEA area are unlikely to be a good option for anyone with a fund of less than £1,000,000 thus ruling out 95% of UK pension fund holders.
Not all schemes included:
According to International Adviser the following is true:
Exceptions to the charge will apply to allow transfers to be made tax-free where people have a genuine need to transfer their pension, including when the individual and the pension are both located within the European Economic Area.
HMRC cannot tax these transfers under EU freedom of movement of capital rules, but post-Brexit this will not be the case and HMRC will likely shut this down as well.
Other exceptions include:
- both the individual and the Qrops are in the same country after the transfer;
- the Qrops is an occupational pension scheme sponsored by the individual’s employer;
- the Qrops is an overseas public service pension scheme as defined at regulation 3(1B) of S.I. 2006/206 and the individual is employed by one of the employer’s participating in the scheme; and,
- the Qrops is a pension scheme established by an international organisation as defined at regulation 2(4) of S.I. 2006/206 to provide benefits in respect of past service and the individual is employed by that international organisation.
According to an HM Revenue & Customs (HMRC) paper, the 25% charge ensures that transfers to Qrops will be taxable unless they fall under the exceptions outlined above. The tax charge will be deducted before the scheme administrator or scheme manager makes the transfer.
Widens taxing provisions
HMRC also said the change widens the scope of UK taxing provisions so that, following a transfer to a Qrops on or after 6 April 2017, they apply to payments out of those transferred funds in the five tax years following the transfer.
This is regardless of whether or not the individual is resident in the UK.
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.
QROPS Budget 2017 was published on 8th March 2017
- QROPS Rules 2017 – Are the new QROPS rules fair?
- 10 Reasons to use a QROPS. Facts and Myths, Leaving UK Pension Legislation Behind (8)
- QROPS Budget 2017- The Devil is in the Detail
- The Lifetime Allowance – LTA QROPS and Returning to the UK
- Pension transfers, QROPS and Inheritance Tax
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