QROPS ( ROPS ) were mentioned in the UK Chancellor’s first Autumn Statement, though full details of how the changes to QROPS will be applied will not be available till 5th December 2016.
No doubt the devil will be in the detail and so this is purely an overview.
Essentially, QROPS ( ROPS ) are to have the income taxed more in line with UK pensions.
In addition, it will extend from five to 10 years the taxing rights over recently emigrated non-UK residents’ foreign lump sum payments from funds that have had UK tax relief. This may affect those that planned to transfer to a QROPS to get a 30% lump sum rather than 25% from a UK pension in the first 10 years.
QROPS Abuses – 90% of income taxable in the UK
UK holders of foreign pensions only had 90% of the income assessed to tax. Now, offshore pensions including QROPS ( ROPS ) will be taxed 100% in line with UK pensions.
Tailormade pensions welcome this new ruling. Sales of QROPS were often made, when it was clear the expat would return to the UK, based on the myth that paying only 90% tax on the income would save money. Even worse, there is evidence of QROPS being sold to UK residents on this basis.
We have made our views clear on this with a previous blog 90% tax and the supposed savings
QROPS trustees – Scrapping of 70% “income for life” rule
Some territories retain this rule although it had been abolished in the UK since April 2015. This brings ROPS more into line with UK rules, but it is worth considering the previous point. Tax will have to be reported to avoid abuse.
In our experience, even with the greater flexibility in the UK, many people have retained funds in pensions due to the tax advantages and ability to plan for dependents free of IHT. In effect a pension is a great trust to own, so why get rid of it unless there is a direct need?
Section 615 Pensions
The government will close specialist pension schemes for those employed abroad (‘section 615’ schemes) to new saving.
HMRC QROPS List
The government will update the eligibility criteria for foreign schemes to qualify as overseas pensions schemes for tax purposes. Will this lead to a cull on the QROPS lists?
Summary
A positive move by the Chancellor, together with a proposed ban on cold-calling for pensions in the UK, that may stop some of the inappropriate QROPS sales that will provide negative outcomes for many.
The Full Autumn Statement can be viewed here Autumn Statement 2016
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.
Posted 25th November 2016
Related Stories:
- Retiring in Portugal
- 10 Reasons to use a QROPS. Facts and Myths, QROPS Increased Flexibility (7)
- UK residents- is 90% QROPS pension income taxable
- How Britain’s Autumn Statement Affects Pensioners
- Are QROPS a Good Idea?
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