How Did the Budget Effect QROPS in 2016?
The Budget 2016 QROPS Rules – The budget in 2016 had a negligible effect on QROPS / ROPS for the first time in a few years. Normally, each budget brings in a change to the ROPS rules and certain jurisdictions get shut down or delisted. But, this year was remarkably quiet. No major changes to the ROPS rules were rolled out. In fact, it led to some larger QROPS providers such as Boal & Co. to lower their fees and STM Group’s profits jumped 60% in 2015.
There was a worry that UK pensions may be changed and launched as ISA style pensions. But, with a Brexit clouding thoughts, George Osbourne was told to put it on the back burner for the next couple of years. You can read about the shelved pension plans here.
The Budget 2016 QROPS Destinations: Popular QROPS destinations continue to be the Isle of Man, New Zealand, Malta, Gibraltar, HK and Australia. Now more Australian SMSF’s have been added back to HMRC’s list now they comply with the new member age test and ill health benefits. However, for residents of Australia, Canada and the USA, a Malta ROPS may be a better option. Malta has a Double Taxation Agreement with these countries meaning the ROPS grows free from tax and with no tax on death. It gives you much more flexibility if you ever decide to retire back to the UK or elsewhere. It allows multiple currencies to be held as well and a larger universe of investments to be held.
Budget 2016 and QROPS / ROPS Pension Changes
Serious ill-health lump sums
If an individual meets the requirement to take a serious ill-health lump sum, but has already accessed their pension(s), they will be able to take the remaining funds that have not been accessed as a serious ill-health lump sum.
Where a serious ill-health lump sum is paid to an individual who has reached age 75, it will be taxable at that individual’s marginal rate rather than at a flat rate 45%.
Dependant’s drawdown and flexi-access drawdown
Where an individual has a dependant’s drawdown pension fund or dependant’s flexi-access drawdown fund because they are a child under the age of 23 of the member who has died, they will be able to continue to receive drawdown pension or flexi-access drawdown pension as authorised payments after reaching age 23. This would ensure that a child dependant who continues to draw down from their fund when they have reached age 23 does not have tax charges of up to 70% on any payments received from that date, and aligns their tax treatment with that of a nominee of the member.
Trivial commutation lump sum
A change has been made so that a trivial commutation lump sum (i.e. a pension pot under 30,000 pounds) may be paid out of a money purchase scheme pension that is already in payment. In other words, you can cash in your UK pension pot if it is worth 30,000 pounds or less.
You can read other minor changes to UK pension rules 2016 here.
UK Budget 2016 Summary
What was the main effect of the budget outside of the QROPS / ROPS world?
Well, the main effect was on the poor and the cutting of benefits to the disabled.
The Resolution Foundation is an independent think tank that aims to improve living standards for low- to middle-income families in the United Kingdom.
The thinktank’s analysis of the tax and benefit changes for the rest of the parliament shows that by 2020 the poorest fifth of households will lose an average of £550, while the richest fifth will gain an average £250.
The UK cuts taxes on the oil industry. The British government took further steps on March 16 to aid its struggling oil industry, scrapping the 35 percent petroleum tax and reducing another tax on profits from 20 to 10 percent. The North Sea oil industry has been suffering worse than most during the downturn in prices, due to the aging oilfields and expensive production costs. The industry widely praised the moves, whilst rising global temperatures had environmentalists’ blood temperature rising.
A new sugar tax on the soft drinks industry will be introduced in 2 years’ time, raising £520m per year, which will be spent on doubling funding for primary school sport in England.
The threshold at which people pay 40% income tax will rise from £42,385 now to £45,000 in April 2017. This will only apply to Scotland if it is adopted by the Scottish government.
The tax-free personal allowance: the point at which people pay income tax will rise from £11,000 in April 2016 to £11,500 in April 2017
Capital Gains Tax will be cut from 28% to 20%, and reduce from 18% to 10% for basic-rate taxpayers.Corporations are the big winners here.
Insurance premium tax will rise from 9.5% to 10%. This will hit middle income households.
Class 2 National Insurance contributions have been abolished, which the government says will give a tax cut of more than £130 to three million self-employed workers from 2018. Well, it works like a tax cut, but o spend this just reduces the future savings of pensioners in an attempt to get them that money now.
So, all these moves are an attempt to boost consumer spending today in the economy at the cost of future savings. Whilst governments dilly dally and put off fiscal expansionary measures, the government are doing the exact opposite of what the economy needs, which is large scale government spending. Instead, they are hell bent on fiscal austerity. Yes, tax cuts help to boost spending, but the economy needs jobs and long term savings plans. We need fiscal expansion, not contraction.
The Budget 2016 QROPS Summary: Nothing has really changed. Likely no changes until 2017 when personal allowance is supposed to expire for expats, meaning you pay full UK taxes on your entire pension.The Budget 2016 QROPS / ROPS Rules by Richard Malpass