Important QROPS Legislation Changes

On Tuesday 6th December 2012, Her Majesty’s Revenue and Customs (HMRC) released a ‘consultation’ document in relation to The Overseas Pension Schemes (Miscellaneous Amendments) Regulations 2012 – which will form part of the 2012 Finance Act – and are due to be passed into law on the 6th April 2012.
The ‘draft’ regulations detail some major changes to Qualifying Recognized Overseas Pension Scheme (QROPS) provision that will affect, if passed as drafted, virtually every future member of QROPS – as well as the vast majority of QROPS jurisdictions and schemes.
Although this is only a consultation document from HMRC (with the consultation period due to expire on 30th January 2012), the document has been released with full draft regulations, which would indicate that the consultation exercise is just a formality.

The Main Changes to the QROPS Legislation

The most significant points of the changes are:

  • The QROPS reporting period, which is the period that the QROPS trustees are required to report to the UK’s HMRC on any payments to members, has been increased to 10 years after the member transfers out of a UK registered pension scheme from 5 years of the member’s non-UK residency.
  • Pension schemes that are not registered for tax purposes in their country of establishment will no longer be recognised.
  • Any distribution from a QROPS, within 10 years of the member becoming non-UK resident, must be reported within 60 days for every single payment or transfer.
  • There may be UK tax implications for UK residents being members of QROPS.
  • QROPS jurisdictions, where the QROPS member lives in a different territory to their QROPS provider, will be required to withhold tax from non-resident members in the same way as they would for resident members.
  • Potential members will have to lodge an acknowledgement of any potential adverse tax consequences with HMRC before they are allowed to transfer.
  • The transferring UK pension scheme will have to notify HMRC of any of their members, transferring to a QROPS, within 30 days of the transfer occurring.
  • New Zealand QROPS schemes will have to provide, from UK transferred funds, at least 70% of income for life, for non-New Zealand resident members of their schemes.

As highlighted by HMRC, the main purpose of this legislation was to prevent UK pension members, who have been out of UK for 5 complete UK tax years, from taking 100% of their funds, as a lump sum, by transferring to a New Zealand QROPS.
Indeed, should these rule changes be implemented in their current format, UK pension members, will no longer be able to take advantage of the flexible benefits currently available from New Zealand Schemes, from 6th April 2012 onwards.
However,  one ‘unexpected’ impact, as far as we are concerned, is in clause 4.3, which states that pension schemes will not be able to meet the QROPS conditions  ”where non-residents have a tax relief  (gross payment) that is not available to residents of the country in which the scheme is established.  Following these changes some schemes that currently meet the conditions to be a QROPS will no longer do so”.
This is a potential area of concern for the popular QROPS jurisdiction of Guernsey. Under current legislation an individual could domicile their pension in a third party jurisdiction (such as Guernsey), receive their income gross and simply declare it on their tax return. However, Guernsey currently tax their local residents on pension income at source, which is at odds with the new clause.

Existing QROPS Members

At this stage, the new draft QROPS regulations do not appear to be retrospective, thus providing grandfathering provisions for existing members.  Please see a link to the full documents on the HMRC website:

Detailed within the impact note under the heading of ‘Operative date’ is the statement ‘The measure (subject to any revisions through consultation) will have effect for QROPS and for transfers to QROPS requested on and after 6 April 2012’.
This is very important as it clearly states that the new rules will only apply to QROPS set up after 5th April 2012. Any clients that join before this date have a legal right to certainty with their affairs as long as they comply with the existing definition of a QROPS.  With this in mind, and following discussions with various industry professionals, it is our view that any QROPS established before 6th April 2012 will enjoy the same benefits as they do now.

Moving Forward

Global QROPS Ltd will be keeping clients up to date with any further developments within the consultation period and leading up to 6th April 2012.
Furthermore, Global QROPS recommend that anyone looking to take advantage of the more favourable benefits available from QROPS, before the 6th April 2012, should contact us immediately on +44 (0) 1372 724249 or email info@globalqrops.com