New QROPS Rules Amendments for 2013
Tuesday 11th December saw HMRC release draft clauses to be included in next year’s Finance Bill which included QROPS rules changes for 2013. Thankfully, after the major changes that shook the QROPS market last year, the changes this year are relatively minor in nature. Last year, sweeping changes ended with most Guernsey QROPS schemes effectively being shut down as well the Isle of Man 50c scheme. Since then, there has been a real movement in jurisdictions with Malta, NZ and Gibraltar leading the way.
Some changes were expected, of course, following the hints given in the 2012 Budget, however we had no expectations until now as to what they might be. Now we do. The measures, in the form of revisions to the s169 Finance Act 2004 and new secondary legislation to follow, are aimed principally at ensuring the schemes that currently are Qualifying Recognized Overseas Pension Schemes (QROPS) do not escape HMRC reporting requirements if they cease to become QROPS in the future.
There is also a new requirement on scheme providers to make sure that their schemes still adhere to QROPS rules every 5 years. A scheme can be struck off as a QROPS provider if they fail their responsibilities in this manner.
The new QROPS reporting amendments appear to be measured and uncontroversial; in stark contrast to this time last year, where a major shift in which jurisdictions could allow transfers took place. The changes will take effect from the date which the Finance Bill 2013 receives Royal Assent.
Where Can I Read the New QROPS Rules Changes?
The relevant subsection 34 for QROPS rules changes can be found here on the Schedule 36 update from HMRC’s web site.
The article is in amendment to 1/04/10.
The relevant subsection is split into 10 sections mainly covering HMRC’s ‘Information and Inspection Powers’.
(1) Part 1 covers HMRC’s powers to obtain information and documents
(2) Part 2 covers HMRC’s powers to inspect businesses when it wants and to inspect involved 3rd parties.
(3) Part 3 covers future powers such as the power to copy and/or remove documents as well as record documents.
(4) Part 4 covers what they aren’t allowed to do.
(5) Part 7 covers penalties including a £300 fine for persons obstructing HMRC and up to £3,000 for inaccurate information or documents. They also have the power to change the charges on these penalties!
So, What Do the New QROPS Changes Mean?
The new QROPS changes mean nothing for a British expatriate who wishes to transfer into a QROPS offshore. These are merely cosmetic changes and only affects the trustees who are administrating your pension with regards to reporting requirements.
You will still have to be offshore for 5 years in order to receive the QROPS benefits, although you are allowed to transfer before the 5 years you are offshore. You just have to wait 5 years before you are allowed the extra lump sum allowed under a QROPS and before you start avoiding the 55% tax upon death if applicable. Thanks to new changes to UK pensions, you could start taking 120% of GAD rates as far as a pension income straight away if applicable.
ALL THE QROPS AVOID UK TAXES.
Gibraltar QROPS may continue to be one of the most popular options which just has a flat 2.5% income tax rate.
Malta QROPS has a ZERO income tax rate IF your country of residence (the country you currently live in) has a Double Taxation Agreement (DTA) with it. You also need to provide proof from the tax authorities of the country you live in that you are tax resident. Otherwise it is a 15% – 35% income tax rate.
Isle of Man QROPS allows the highest amount of pension income (sometimes up to 55% or more than other jurisdictions). If pension income is your goal, IOM is the best destination. However, you would pay 20% income tax unless you are in one of the few countries which have a DTA with IOM (notably, some countries in the Middle East).
NZ QROPS has a ZERO income tax rate as long as you are NOT a NZ resident. Although your investment options are extremely restricted.
If you are a NZ resident you will pay NZ income taxes and on the lump sum (up to 33%), although there is a 2 year grace period. This includes if you are a NZ resident and have a non-NZ QROPS, e.g. a QROPS in Malta, or a NZ QROPS.
More information can be found under Chapter 3 of NZ IRDs ‘Taxation of Foreign Superannuation’.
If you want QROPS advice, please contact us at: