Changes to QROPS Rules 2012. Draft Financial Bill
New QROPS rules for 2012. Detailed draft legislation has been published, The Overseas Pension Schemes (Miscellaneous Amendments) Regulations 2012, aimed at strengthening the tax rules applicable to QROPS. The changes will be introduced from the 6th April 2012.
The main changes mean that the reporting requirements to the Inland Revenue are now for ten years rather than five years, ending of the abuse through cashing-in of pensions, as well as tightening up eligibility.
New QROPS Rules 2012
1. HMRC Reporting
Ever since 2006, the reporting QROPS rules have required QROPS providers to notify HMRC when the first benefit payments are paid to the member, but only if the member is resident or recently resident (5 years or less) in the UK.
These QROPS rules will change for 2012. The changes apply to existing QROPS/members from the 6th April, 2012, as well as to new QROPS/members after that date.
The new reporting requirements for the QROPS provider are:
to report any payments made within 10 years of the transfer;
the reporting clock stops ticking 10 years after the transfer occurs, as opposed to 5 years after the member became UK non-resident;
the 10-year reporting obligation applies regardless of whether the member is resident or non-resident and;
the reporting covers all benefit payments, not just the first benefit payment;
Furthermore, reporting is to be made on a more timely basis by the QROPS provider. It is currently done on an annual basis. However, from 2012 the information has to be provided by the QROPS manager within 60 days of each payment.
Comment: The longer and more frequent reporting will clearly be an increased obligation on QROPS firms. It does not impact however on members. The key thing here is that the “member payment charges” regime continues to operate only for the 5-years after leaving the UK (and of course it applies too on any return to UK-residence). So there is increased reporting, without any change to the tax liability. QROPS providers may have to report to HMRC for 5 or more years longer than before, but there is no change to the member’s UK tax liability (or non-liability).
2. Ending New Zealand QROPS Abuse (100% lump sums)
There has been significant “abuse” of the QROPS provisions by a small minority of providers, which facilitated 100% lump sums (akin to pension busting). This may have been legal under the rules, but was clearly outside of the intended purpose behind the QROPS regime. New measures are therefore introduced which require NZ schemes to provide a pension with at least 70% of the transfer value made into them, i.e. NZ schemes will have to comply with the same requirements as other country QROPS.
Comment: We welcome these measures to stop abuse through NZ QROPS schemes. We also observe that the new NZ measures express the pension requirement in respect of 70% of the “funds transferred”. This endorses yet again the basis upon which “Trinity”/50C is founded.
3. QROPS Eligibility Criteria
A new condition will be introduced to the list of criteria that an overseas pension scheme has to satisfy in order to be a QROPS. The new Condition 4 means that for QROPS to operate on a “TEE” basis, i.e. where benefits are exempt from tax, the same exemption has to apply to residents and to non-residents in the country.
This new Condition 4 is a game-changer for some schemes – particularly so in the case of Guernsey schemes which relied upon the 40 (ee) exemption in order to be able to deliver tax-exempt benefits to non-residents. For such schemes to continue to be QROPS after the 6th April, 2012, the same exemption has to be available to Guernsey residents as well.
In the case of the IoM 50C scheme, Boal & Co. will liaise with the tax authorities and other government departments in the Isle of Man with a view to ensuring that 50C legislation satisfies the new Condition 4. Boal & Co. intend to bring clarity and certainty to the question, and we will update advisers in due course.
Where QROPS schemes such as Guernsey schemes are unable to satisfy the new Condition 4 when it becomes operative next year, they will have to de-register their QROPS status, and so will no longer be able to accept UK transfer business from that date. It is important to understand however that existing members are not compromised by this change in status, so long as the schemes meet the applicable QROPS requirements at the earlier date of transfer, i.e. this does not change the status of “recognized transfers” already made under the previous QROPS conditions.
4. Member Personal Information
New regulations to be introduced in April 2012 will require members requesting a QROPS transfer to provide personal information to their UK pension scheme and for that UK scheme to check it and ensure that it is filed with HMRC within 30 days of the transfer taking place.
We will work through the full detail of all of the measures to ensure clarity and to ensure that advisers are informed. We emphasize that schemes which satisfy the current QROPS conditions can remain open to transfers until the 5th April 2012 and it is only after that date that the rules change. Please read this blog for further updates in the coming weeks.
QROPS Rules Changes. When to transfer to a QROPS?
Clearly it may be advantageous to transfer before the 6th April 2012 before the new QROPS rules come into place. QROPS transfers usually take 3 months to 6 months depending on your QROPS provider. QROPS Specialists will work with you to ensure a more speedy transfer.
For enquiries, please send an email to firstname.lastname@example.org
Changes of QROPS Rules article brought to you by QROPS Specialists. Thanks to Boal & Co.Changes to QROPS Rules 2012. Draft Financial Bill by Richard Malpass