UK Budget in 2013 and QROPS Rules
Well, the recent UK budget in 2013 seems to have had little effect on the QROPS market with most of the major changes taking place in the last budget. Malta and Gibraltar QROPS will continue to play a central role with New Zealand QROPS likely to pick up smaller pensions as well as pensions where a client is near or in retirement and has a conservative outlook, but of course every case is unique.
The Isle of Man will also continue to fill a role, particularly for those British expats who are in ill health and want to draw a higher pension income, as the IOM does not depend on 120% GAD, but on their own actuarial estimations based on a 6% annual increase in the pension pot.
Summary of the Major Changes in the Budget
- A clamp down on tax avoidance and tax evasion with more tax information exchanges and Double Taxation Agreements. Further guidance to be provided concerning the General Anti-Abuse rule (GAAR), although this hasn’t been clarified yet.
- Corporation tax down 1 point to 20%
- 450,000 small firms will pay no employer National Insurance
- Stamp duty on AIM shares will be abolished
- Capital Gains Tax (CGT) relief on sales of businesses to their employees
- First time homebuyers will get help, only needing a 5% deposit with the government coming up with the other 20%.
- Single flat rate pension of £144 a week is to be brought forward a year to 2016.
- Contracting out of paying into the state pension is abolished with everyone paying the same NIC’s.
- Beer down 1p, but wine (add 10p) and spirits (add 38p) not left off the hook.
- Inheritance tax starts to be paid from an inheritance of £325,000 now. This was supposed to rise to £329,000 from April 2015 – the first increase since 2009 – but the chancellor changed his mind. It will now be frozen at its current rate until 2019 at the earliest.
- Personal allowance for income tax to increase to £10,000.
Clearly the government wants to clamp down on tax avoidance and tax evasion in a year where high profiles celebrities such as Gary Barlow, Anne Robinson and Jimmy Carr have tried to avoid their share of paying taxes in the UK.
Tax avoidance however is lawful and it is the law which should be changed. The new GARR could lead to it being even more difficult to understand the difference between legal tax avoidance schemes and abusive schemes. Fortunately, QROPS are used to transfer pensions offshore for British expats and are not seen as simply a way to avoid tax. The clue is in the name: Qualifying Recognized Overseas Pension Schemes. They are recognized pension schemes which allow expats to enjoy a tax efficient jurisdiction whilst they are living and working offshore.
Changes in the Budget that Affect a Decision of Whether to Move to a QROPS
- At the moment pensioners earning less than about £24,000 a year get a more generous tax-free allowance; £10,500 for 65-74 year olds and £10,660 for those aged 75 and over. That advantage gradually falls off as income rises to around £29,000.
- From April 6, 2013, allowances for anyone already aged 65 will be frozen and the extra personal allowance will be scrapped for anyone who turns 65 after 5 April.
- The higher rate income tax threshold will increase by 1% a year in 2014-15 and 2015-16. That is below the rate of inflation (CPI) and is likely to bring another 400,000 taxpayers into the 40% higher rate.
- Also from April 6, the highest earners; those with income of more than £150,000 will face a 45% rather than 50% tax rate, for now…
This means slightly less people at the low end, but hundreds of thousands more middle income tax payers will now be paying more taxes in the UK.
The main changes revolves around reporting that QROPS will need to re-notify HMRC every 5 years that they continue to meet the requirements for QROPS. Former QROPS will also have to continue to report payments on transfers received to HMRC. The big changes involve contributions, which were mentioned in the autumn statement and have now further reduced from £50,000 to £40,000. However, if you want to contribute more than £40k a year (the lucky few) into a pension scheme, you can put this money into a QNUPS.
The amount you can transfer out into a QROPS (the ‘The Lifetime Allowance’ will also be reduced to £1.25 million from its current value of £1.5 million) from 2014-15 onwards. However, you can protect against this by notifying HMRC by 2014. Contact us for more info and help filling in the forms required.
This ‘fixed protection 2014′ for your LTA needs to be in by April 5th, 2014. More guidance will follow later on the year.
Summary of the New UK Budget on QROPS in 2013
As far as the QROPS jurisdictions, nothing has really changed. Malta, Gibraltar and New Zealand will continue to lead the way. The new budget means more people than ever will be sucked into the top rate of tax and as your income increases, your allowances or benefits will fall. This should lead to an increase in UK pension transfers to the QROPS market.