Wednesday, May 4, 2011
Investors should not be deterred from investing via a Qualified Registered Overseas Pensions (QROPS) structure after the UK tax authority, HM Revenue and Customs (HMRC), closed a tax loophole created by a new double taxation treaty with Hong Kong, according to a leading offshore pension provider.
The new guidelines are designed to prevent UK residents from transferring their pension to a QROPS to ‘wholly or partially’ take advantage of double taxation arrangements in order to pay less tax on their pension income received while resident in the UK. Instead they will now be taxed in the UK with tax paid overseas credited against the UK tax bill.
Adam Wrench of London & Colonial said the loophole had arisen because certain double taxation agreements between the UK and offshore jurisdictions allowed UK residents with a QROPS registered in such jurisdictions to draw pension income at the rate applicable in the country where the QROPS was registered. The tax rate applicable in the case of Hong Kong was 17%.
The closure of the loophole will ensure that residents do not pay lower tax on pension income than would apply in the UK.
“The Treasury’s move will affect anyone who has taken out a QROPS in an overseas jurisdiction where there is a double taxation agreement that allows them to pay income tax at a lower rate than in the UK,” Wrench said. “But there is no double taxation agreement between the UK and Gibraltar so it will not affect our customers, once we launch the London & Colonial QROPS. We are currently awaiting regulatory approval from the Gibraltarian authorities but plan to launch before the end of the year.”