Does QROPS reporting cease after a UK member has been absent from the UK for more than ten full tax years?
A payment (or a deemed payment) will not have to be reported to HMRC by a QROPS if the member is not tax resident in the UK when the payment is made and has neither been UK resident in that tax year, nor in any of the previous ten tax years.
However, a QROPS will need to check on the position when a payment is made as the member could have become UK resident again after a period of non-residence in which case the payment must be reported.
Until that full ten tax year cut-off date or if the member is UK resident at the time of payment, the QROPS trustee is obliged to let HMRC know about any withdrawals, payments, or transfers made from the individual’s account within 90 days of the payment being made. HMRC will then determine whether the payment is authorised or unauthorised and will be able to contact them directly.
What happens if a member returns to the UK before having taken the benefits?
The member is required to inform the QROPS that they have returned to the UK. If the member then transfers their funds, or takes benefits from the QROPS, the scheme has to report the payment to HMRC regardless of how long the member was non-UK resident previously. Failure by the scheme to report the payment may result in their QROPS status being removed.
What happens if a QROPS loses its approved status and the member returns to the UK before having taken the benefits?
Currently, the member is required to report any taxable events that the QROPS providers would have reported to HMRC when they were approved, unless or until the member chooses to transfer to a new provider with QROPS status.
From 6 April 2013, any QROPS that has its status rescinded by HMRC, or chooses to cease being a QROPS, must continue to meet the reporting requirements in respect of member benefit payments made when the member is UK tax resident or non-UK resident for less than 10 complete tax years.
Failure to meet this requirement may result in financial penalties for the former QROPS..
If a contribution is made to a QROPS whilst a member is not UK tax resident how does this impact the 30/70 split?
If the non-UK tax resident member did not receive UK tax relief on the contributions made to the QROPS whilst being a non-UK tax resident then they would not form part of the member’s UK tax-relieved scheme funds and therefore would not be subject to the 30/70 split. Any growth on the transferred funds will also not be included in the 30/70 split.
It is a requirement of the QROPS rules (relating to member payments from transferred funds) that a QROPS must keep a record of the amount of the member's ‘transfer fund’.
For example (assuming the member payment provisions no longer apply to John).
John has moved to Cyprus and makes a transfer from his UK pension to an Isle of Man (IOM) based QROPS. The transfer value is £250,000. A few years later John pays an additional contribution of £50,000 to the QROPS. At this time the value of John’s pension fund has grown to £340,000. If John were to take his pension benefits then:
• 70% of the transfer value (ie £250,000) has to provide an income for life (70% of £250,000 = £175,000)
• 30% of transfer value (ie 30% of £250,000 = £75,000) can be taken as a lump sum free from UK tax.
The additional contribution (ie £50,000) plus any growth on the additional contribution; and any growth on the transfer value, may be taken as a lump sum (subject to IOM rules) as not subject to the 30/70 split rules.
The growth on the additional contribution and the growth on transfer value total £40,000 in this example. Therefore £165,000 (£50,000 additional contribution, £40,000 fund growth and £75,000 lump sum allowance) can be taken as the total lump sum (subject to IOM rules).
Cypriot rules and regulations will also need to be considered.
In the previous example, would the £165,000 lump sum be tax free?
It is a possibility but will depend upon the tax rules governing the QROPS in the country where it is based as well as the tax rules applying where the individual is tax resident and any double taxation agreements between the two.
For example an individual may be taxed on any interest, income or growth on the funds on bringing the funds back into the UK e.g.if they are held in a UK bank account.
However, drawing a lump sum may not be as important to an individual outside the UK where the impact of tax on income and inheritance tax may be much reduced. Therefore unless a large sum is required, drawing regular income may be preferable.