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Offshore QROPS Domiciles Stunned At HMRC's Last-Minute Change

Thursday, April 12, 2012

The UK tax authority, HM Revenue and Customs (HMRC) has indicated that tax relief available on pension transfers, under so-called Qualifying Recognised Overseas Pension Scheme (QROPS) structures, will no longer be available unless the Scheme is offered within the territory in which the expatriate is newly resident, putting a multi-million offshore industry at jeopardy.

UK tax law has long provided tax-free treatment on the transfer of pension schemes to qualifying schemes overseas, to simplify the tax affairs of UK residents wishing to reside elsewhere. However, HMRC announced last December that it would look to revise the rules to combat tax avoidance where pensions could be transferred to an overseas territory and a 100% lump sum paid out free of tax.

Despite industry lobbying, with Guernsey in particular noting its compliant behaviour in the field, HMRC progressed with the reform. At the same time, many QROPS domiciles progressed alternative schemes to accommodate the required change. Industry leader Guernsey moved forward with creating a new category of pension scheme, known as Schedule 157E schemes, which, by extending the tax exemption on pension benefits to Guernsey residents, was designed to meet HMRC’s proposed revised criteria for a scheme to be considered a QROPS.

The final legislation announced in the UK Budget required that any scheme wishing to be a QROPS from April 6, 2012, must offer equal treatment to residents as non-residents. On the assumption this would be the case, Guernsey’s parliament, the States of Guernsey, approved its new s157E schemes in early March so that they would be ready for introduction from April 6, 2012.

However, HMRC has now seemingly moved the goalposts once more, indicating that only schemes offered to 'residents only' will be recognised as qualifying schemes, so that many schemes thought to be compliant following the change are unlikely to be accepted onto the new list of qualifying schemes, due to be published by HMRC on April 12, 2012.

The Guernsey government has confirmed in an initial response that it expects HMRC to disqualify Guernsey's new Schedule 157E schemes from being recognised, although schemes pre-dating the change are expected to not be affected.

Guernsey has said it is 'extremely disappointed' with HMRC's position, and has sought clarification on various aspects.

In response, Fiona Le Poidevin, Deputy Chief Executive of Guernsey Finance - the promotional agency for the Island’s finance industry, said:

“At the moment, the situation is very unclear but we are extremely disappointed at what we have heard so far from HMRC. In terms of the s157E schemes, we understand it is likely that these will now not be considered compliant. However, what we have not heard from HMRC is on what basis they have made this decision and what the implications will be not just for Guernsey but the QROPS industry more widely.”

“We will be monitoring these developments very closely in the coming days and hopefully this will shed more light not only on the future of the QROPS industry in Guernsey but for all jurisdictions.”

Treasury and Resources Minister, Charles Parkinson, added:

"I would encourage relevant 'residents-only' schemes to contact the Income Tax Office (ITO) as soon as possible in order to stand the best chance of securing confirmation of their status on the HMRC's revised list."

"We have asked the HMRC to clarify the process with regard to a smooth transition to the UK's new regulatory regime for occupational schemes, and they have said they will come back to us as soon as possible. As soon as they do the ITO will inform the Guernsey Association of Pension Providers and individual providers."

"We have also asked the HMRC to come back to us with clear and detailed information with regards to their position on 157E schemes. When we have that we will communicate it with our pensions industry immediately."

"While we are naturally disappointed that the UK has taken this action, we are relieved that pension schemes which have already been established in Guernsey will be largely unaffected, except in respect of any further transfers of assets from UK pension funds into those schemes."

"We are working to ensure that future transfers into schemes established for the benefit of Guernsey residents will not be affected by the change in the UK's stance."

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The Report

Offshore Trusts Guide: Introduction

The History of Offshore Trusts
Development of Professional Competence in the Jurisdictions
What Future for the Trust?
The New Age of Transparency
The Swiss Association of Trust Companies
The Society of Trusts and Estates Practitioners

Offshore Trusts Guide: Jurisdictions

Bahamas

Bahamas: Legal Framework and Formation Rules and Fees
Bahamas: 2006 Private Trust Companies Legislation

Barbados

Barbados: Legal Framework and Formation Rules and Fees
Barbados: Supervisory and Licensing Regime and Fees

Bermuda

Bermuda: Legal Framework and Formation Rules and Fees
Bermuda: Supervisory and Licensing Regime and Fees

British Virgin Islands

British Virgin Islands: Legal Framework and Formation Rules and Fees
British Virgin Islands: Special Trusts Act 2003
British Virgin Islands: The Trustee Act 2003
British Virgin Islands: :Supervisory and Licensing Regime and Fees
British Virgin Islands: New Laws on Private Trust Companies
British Virgin Islands: New Private Trust Company Regulations

Cayman Islands

Cayman Islands: Legal Framework and Formation Rules and Fees
Cayman Islands: Supervisory and Licensing Regime and Fees

Cook Islands

Cook Islands: Legal Framework and Formation Rules and Fees
Cook Islands: Supervisory and Licensing Regime and Fees

Cyprus

Cyprus: Legal Framework and Formation Rules and Fees
Cyprus: Supervision, Licensing and Tax

Gibraltar

Gibraltar: Legal Framework and Formation Rules and Fees
Gibraltar: Legislation, Regulation and Supervision

Guernsey

Guernsey: Legal Framework and Formation Rules and Fees
Guernsey: Trusts Law 2007

Isle of Man

Isle of Man: Legal Framework and Formation Rules and Fees
Isle of Man: Supervisory and Licensing Regime
Isle of Man: Uses Clients and Tax Treatment

Jersey

Jersey: Legal Framework and Formation Rules and Fees
Jersey: Supervisory and Licensing Regime
Jersey: Trusts Amendment Act 2006
Jersey: Foundations

Liechtenstein

Liechtenstein: Legal Framework and Formation Rules and Fees
Liechtenstein: Regulation Supervision and Transparency
Liechtenstein: Characteristics of Liechtenstein Trusts
Liechtenstein: Foundations

Madeira

Madeira: Legal Framework and Formation Rules and Fees

Malta

Malta: Legal Framework and Formation Rules and Fees
Malta: The Trust and Trustees Act 2004

Mauritius

Mauritius: Legal Framework and Formation Rules and Fees
Mauritius: Characteristics of the 2001 Trusts Act
Mauritius: Additional Provisions of the 2001 Trusts Act
Mauritius: Tax Treatment

Monaco

Monaco: Legal Framework and Formation Rules and Fees

Nevis

Nevis: Legal Framework and Formation Rules and Fees

Panama

Panama: Legal Framework and Formation Rules and Fees
Panama: Requirements for Acting as Trust Company in Panama

Seychelles

Seychelles: Legal Framework and Formation Rules and Fees

Turks & Caicos

Turks & Caicos: Legal Framework and Formation Rules and Fees
Turks & Caicos: The Voidable Dispositions Ordinance

Vanuatu

Vanuatu Legal Framework and Formation Rules and Fees




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