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
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."