UK Flexible Drawdown Rules to Apply to QROPS in Draft Legislation 2015
QROPS flexible drawdown has been written into new UK legislation which will allow QROPS to allow maximum drawdown or cash lump sum overseas. The need for 70% of a QROPS to provide an income for life has now disappeared from the pension regulations for overseas pensions in HMRC U-turn.
In an amendment to the new UK pension rules in April 2015, the draft legislation will allow a QROPS to become a flexi-access drawdown fund. HMRC are referring to it as a ‘flexed QROPS’.
The new overseas pension regulations which cover QROPS have been given Royal Assent on 17 December 2014.
Regulation 3 amends the overseas pension scheme regulations by removing one of the conditions, specified in regulation 2 of those Regulations, with which a pension scheme may comply in order to become an overseas pension scheme. This is the requirement that 70% of pension funds will provide an income for life. That condition is replaced by a requirement that the manager of the scheme be regulated by a body where the scheme is established which regulates the management or provision of services by such schemes.
Regulation 4 amends regulation 3 of the overseas pension scheme: where there is a transfer of sums or assets constituting a “recognised transfer” to an overseas pension scheme the scheme rules need no longer require that 70% of the pension 10 funds are for the provision of an income for life.
In other words, QROPS will now be “flexible pensions” which means they will be subject to similar rules applied to UK flexible drawdown pension schemes.
So, once you reach 55, you can literally cash-in your overseas pension scheme and likely pay a very low income tax bill when drawing your pension and with no tax on death in the UK. This is an absolute U-turn from HMRC’s former stance and “scorpion letters” it encouraged UK pension companies to provide which warned against pension liberation. Whilst a transfer to a QROPS is not pension liberation as such, you can transfer your UK pension to a QROPS in Gibraltar or Malta and reduce your income tax bill to as low as 2.5% in Gibraltar or even 0% in Malta.
Of course, the Double Taxation Agreements between the country you draw a retirement income in from the QROPS and the QROPS jurisdiction where your UK pension is transferred to becomes of utmost importance, but the ability to take as much of your pension as you want and avoid the 20% – 45% income tax in the UK now make QROPS even more desirable for the 1 in 10 British expats who now live overseas.
You can read the overseas pension schemes regulation 2015 PDF prepared by HMRC in full here.
These Regulations amend the Pension Schemes (Categories of Country and Requirements for Overseas Pension Schemes and Recognised Overseas Pension Schemes) Regulations 2006 (S.I. 2006/206), the Pension Schemes (Information Requirements – Qualifying Overseas Pension Schemes, Qualifying Recognised Overseas Pension Schemes and Corresponding Relief) Regulations 2006 (S.I. 2006/208) and the Registered Pension Schemes (Provision of Information) Regulations 2006 (S.I. 2006/567).
What are the New QROPS Flexible Drawdown Rules for 2015?
QROPS become flexi-QROPS and as much of your pension can be taken as you like in the form of a flexible drawdown and/or a cash lump sum.
The income tax would depend on the rules in the QROPS jurisdiction where a pension is parked and the DTA with the country where the member will take an income at retirement
Pension age in Malta has been raised from 50 to 55. The minimum age to take a pension is 55 for all QROPS.
This is now under a four-week technical consultation in line with the Tax Policy Framework.
The rules need to be rewritten in QROPS jurisdictions such as Malta and Gibraltar, so these changes won’t be immediate, but you can take advantage of the move whilst it is available. HMRC have still tabled 2017 as the year they may cut personal allowance for British expats. That could mean income tax on your entire pension income.
The new overseas pension regulations also applies to UK companies. For UK companies who move their HQ abroad and move their employees abroad, this could mean substantially lower tax bills for their staff.Flexible QROPS Drawdown is Coming in 2015 by Richard Malpass