UK Consults On Changes To QROPS Taxation
Tuesday, December 13, 2011
The UK has published for consultation draft legislation which will overhaul
the system for the transfer of pension savings to qualifying recognised overseas
pension schemes (QROPS).
The legislation, included in Chancellor George Osborne's Finance Bill 2012
package, revises the conditions a scheme has to meet to be a QROPS and strengthens
the information and reporting requirements. The purpose of the consultation,
which ends on January 31, 2012, is to take views on whether these changes have
been successfully reflected in the draft legislation.
QROPS are pension schemes established outside the UK with broad similarities
to a UK registered pension scheme. At present, the government provides tax relief
on pension savings in UK registered pension schemes. When an individual transfers
those pension savings that have benefitted from these reliefs to another registered
pension scheme or to a QROPS, the transfer can be made free of UK tax where
it does not exceed the lifetime allowance. The allowance is currently GBP1.8m,
but from April 6, 2012 will reduce to GBP1.5m.
According to HM Revenue and Customs (HMRC), the government allows these tax
free transfers because they enable people permanently leaving the UK to simplify
their affairs by taking their pension savings with them to their new country
of residence. However, the government has found that QROPS are being marketed
extensively as a way of paying amounts or enabling the payment of amounts that
are not allowed under UK rules (in particular 100% lump sums) once the UK tax
rules no longer apply.
Under the new legislation, the government will revise the conditions that
a scheme has to meet to qualify as a QROPS and introduce an acknowledgement
by the individual, to be completed before a transfer is made, that tax charges
may apply. It will also bring in revised time limits for registered pension
schemes to report transfers to QROPS. In addition, HMRC will receive greater
powers to request information from a scheme manager of a QROPS, and the time
limits for the reporting of payments by a QROPS to HMRC will be altered. The
aim is to ensure better compliance with the regime and to deter misuse.