Monday, April 16, 2012
The Isle of Man government has responded to the recent update to UK rules regarding Qualifying Recognised Overseas Pension Scheme (QROPS), which now excludes transfers to structures under Section 50C of the Income Tax Act 1970, known as 50C pensions.
The UK's QROPS regime provides tax-free treatment on the transfer of a UK pension scheme to qualifying schemes overseas, to simplify the tax affairs of UK residents wishing to permanently reside elsewhere. However, HMRC announced last December that it would revise the regime's rules in particular to counter tax avoidance, where pensions could be transferred to an overseas territory and a 100% lump sum paid out free of tax.
It was anticipated that the change would require schemes to offer equal treatment to both residents and non-residents in order to qualify as a QROPS. However, HMRC has now indicated that only QROPS offered to 'residents only' will be recognised as qualifying schemes, requiring the Scheme to be offered within the territory in which the expatriate is newly resident.
Following the change in rules on March 12, 2012, the UK tax authority, HM Revenue and Customs on April 12, 2012, published an updated list dictating which schemes meet the new criteria.
Of the three types of Isle of Man pension scheme that were compliant under the UK's previous QROPS regime, the Isle of Man government has confirmed that just 50C pension schemes no longer meet UK QROPS rules, and have been removed from the UK tax authority's list. Other schemes, established under the Income Tax (Retirement Benefits Schemes) Act 1978, and Part I of the Income Tax Act 1989, have however been approved.
HMRC has also clarified that: “If a pension scheme that is a QROPS on April 5, 2012, no longer meets the conditions to be a QROPS on April 6, 2012, members of that pension scheme who have already transferred their pension savings will be able to remain as members and receive a pension paid from the sums transferred without incurring additional tax charges.”
In a stoic response from the Isle of Man, Treasury Minister, Eddie Teare stated:
“The UK has made clear that it wishes a QROPS to be broadly similar to a UK registered pension scheme. Although I am disappointed that our 50C schemes can no longer be QROPS, the Isle of Man retains a powerful international pension management offering through having both occupational and personal pension schemes which can be approved as QROPS. We can move on from this point to further consolidate our position as a key pension management jurisdiction and continue both to grow and diversify our economy.”