On the 6 December 2011, the UK Government published the draft Finance Bill 2012 clauses, one of the areas which HMRC issued draft clauses on was Qualifying Recognised Overseas Pension Schemes (QROPS). HMRC are proposing to issue Regulations which will change the conditions that a scheme has to meet to be a QROPS and strengthen the information and reporting requirements. The rationale for this is to ensure better compliance and deter misuse – New Zealand was particularly singled out.
Subsequently, draft guidance notes were issued on 20 December 2011.
Proposed legislation is to revise the conditions that a pension scheme must meet to be a QROPS
SI 2006/206 details the conditions that a pension scheme must meet to be an “overseas pension scheme”, which is the first step in a pension scheme meeting the conditions to be a QROPS. The draft clauses amend the conditions so that pension schemes that are not recognised for tax purposes in their country of establishment will no longer be able to meet the conditions. Nor will pension schemes where non-residents have a relief that is not available to residents of the country in which the scheme is established.
What this would mean?
A number of pension schemes that currently meet the conditions to be a QROPS will no longer do so. The legislation as currently drafted will mean that a number of jurisdictions for example Guernsey and Isle of Man 50(c) schemes would no longer meet the QROPS definition. At this stage the clauses are in draft form and are subject to consultation which ends on 31 January 2012. Clearly, the QROPS providers in these jurisdictions will be looking to lobby HMRC and their local inspector of taxes to ensure they maintain their place in the QROPS community.
The changes are proposed to take effect from the 6 April 2012 and appear to not be retrospective. However, based on the current draft legislation it would appear that say for example a Guernsey QROPS today – would from the 6 April 2012 no longer be regarded as a QROPS. The guidance notes confirm that if a transfer of UK tax-relieved funds has taken place whilst the pension scheme was regarded as a QROPS, UK unauthorised payment charges (or a surcharge) will not arise. However, transfers made after the date on which the scheme ceased to be a QROP's, (so for example the 6 April 2012) will give rise to an unauthorised payment charge (and surcharge) on the member and a scheme sanction charge on the administrator. It is for that reason that UK registered pension providers are unlikely to agree to transfer a UK pension to a scheme that is not a QROP's. The pension would however appear to still meet the QNUPS definition.
In terms of business which is currently in progress, we would encourage financial advisers to inform their clients of the current position and keep close to developments in the coming months.
Additional reporting requirements
SI 2006/208 sets out the information that a scheme manager of a QROPS is required to undertake to provide to meet the scheme’s obligations as a QROPS. The proposed changes removes the need, in the majority of cases, for the scheme manager (QROPS provider), when reporting information, to consider whether the individual is (or has been in the last five full tax years) a UK resident. Instead the scheme manager has to report all payments out of funds transferred from a UK scheme for a period of 10 years from the date of the transfer of those funds to the QROPS. The scheme manager is also expected to report such payments within 60 days of the payment being made.
What does this mean?
These new provisions are draft at this stage and will apply from 6 April 2012. This should have no impact on the member but will put more onus on the scheme manager in terms of reporting obligations.
The draft clauses were unexpected and it is not entirely clear what “wrongs” HMRC are trying to address by the additional requirements they are placing on QROPS jurisdictions. We maintain a watching brief and will update as and when more detail or clarity appears.
The information provided in this article is not intended to offer advice.
It is based on Skandia's interpretation of the relevant law and is correct as the date shown at the top of this article. While we believe this interpretation to be correct, we cannot guarantee it. Skandia cannot accept any responsibility for any action taken or refrained from being taken as a result of the information contained in this article.