UK QROPS Proposals 'Grossly Unfair On Guernsey'
Wednesday, February 29, 2012
Changes to tax regulations that aim to clamp down on the mis-selling of qualifying
recognized overseas pension schemes (QROPS) will disproportionately affect Guernsey,
which has a completely clean QROPS record with the UK tax authority, HM Revenue
and Customs, according to a leading Guernsey QROPS provider.
Pryce Warner International Group says that if enacted, the proposed change,
known as 'Condition 4', would mean that Guernsey residents and non-residents
would pay the same amount of tax on QROPS pensions. However, as QROPS are primarily
designed for expat individuals who are resident in one country but domiciled
in another, QROPS providers in Guernsey are lobbying HMRC to exempt Guernsey
from the new rules. They argue that this rule runs counter to the purpose of
QROPS, will have no added benefit for HMRC and unnecessarily punishes Guernsey,
the QROPS jurisdiction with the strictest guidelines on client protection.
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 benefited 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 this will reduce to GBP1.5m.
According to 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 by some territories 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 UK tax rules no longer apply
to counter tax avoidance.
David Retikin, Director of Operations at Pryce Warner International Group,
said: “Condition 4 is rightly designed to clamp down on the types of mis-selling
that have been seen in jurisdictions such as New Zealand and Hong Kong, but
it will disproportionately affect Guernsey, which has a completely clean QROPS
record with HMRC.”
“Guernsey providers are right in their attempts to correct this prior
to April 5 as it may cause significant damage to the Guernsey pension market.
It is strongly possible that HMRC will drop this provision for Guernsey providers,
as the provision holds no benefit for HMRC itself. Condition 4 only affects
whether or not scheme members pay tax in Guernsey, not the UK, meaning it should
be something for the local government to decide themselves and not HMRC. Allowing
HMRC to dictate the practices of Guernsey’s government would be resoundingly
unfair,” Retikin said.
The firm said although it is possible to make Guernsey QROPS compliant with
Condition 4, providers are reluctant to do so as it means a higher
rate of tax on members, which providers fear will damage the market.
As a contingency plan, the Guernsey government and industry have drawn up a
new pension scheme that would meet the requirements of Condition 4,
called Section 157(E), due to be considered by the States of Guernsey in March.
According to Pryce Warner International, the key features of the new pension
scheme are that:
- Each new Guernsey pension scheme will need to be approved by States of Guernsey
Income Tax office;
- The scheme would be open to Guernsey residents and non-residents;
- No tax would be due on the payment of benefits to members regardless of
- No tax would be due on investment income.
Members of an existing scheme can transfer to the new 157(E) scheme and receive
the following benefits: no contribution limits; normal retirement age still
55; maximum 30% lump sum; no upper age limit on taking benefits; and, transfers
from other Guernsey pension schemes will be subject to 20% tax on Guernsey tax