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.