HM Revenue & Customs has at last broken its silence on its unexpected decision last month to remove all but three Guernsey QROPS from its list of registered schemes, which was published on 12 April – and which has seen Guernsey’s previously booming QROPS industry brought to a jolting halt.
HMRC’s statement came in the form of an amendment to existing regulations for overseas pension schemes. The amendment effectively declares that pension schemes established in Guernsey under the island’s new S157E regime – approved in March by Guernsey lawmakers in an effort to accommodate new HMRC rules governing qualifying regulated overseas pension schemes that the Revenue unveiled in December – could not be used for the pensions of non-Guernsey residents.
Ironically, the S157E regime had been brought in by Guernsey lawmakers in April precisely in order to accommodate HMRC’s concerns, as expressed in the new rules, in an effort to help the island to retain its then-thriving QROPS industry.
As reported, Guernsey had some 313 QROPS schemes on HMRC’s list prior to the revisions that took effect on 6 April, after which just three remained.
It was not immediately clear what, if any, effect HMRC’s statement would have on plans being considered by the Guernsey Association of Pension Providers to launch a formal complaint against HMRC for its action in removing most of its members’ schemes from its list.
Coming into force on 25 May
According to the HMRC statement, identified on a UK Government legislative website as Statutory Instrument No. 1221 (SI1221), the amendment was “made” on 3 May 2012, laid before the House of Commons the next day, and is due to come into force on 25 May.
From that date, where a pension scheme “is established in Guernsey, and... is an exempt pension contract or an exempt pension trust within the meaning of section 157E of the Income Tax (Guernsey) Law, 1975(a), the scheme must not be open to non-residents of Guernsey”, HMRC said in its statement.
As conceived by Guernsey lawmakers, the new S157E pensions regime had been designed as a “one-size-fits-all” pension that could be open to islanders and non-residents alike – with no Guernsey tax due on benefits paid – in order to address HMRC’s concerns.
Guernsey pension industry officials were not immediately available for comment last night. However, Concept Group, one of Guernsey’s major QROPS providers, issued a statement around 6pm noting that “other than some minor adjustment to wording, the statutory instrument covers nothing else [beyond the fact that S157E schemes could not be used by non-Guernsey residents], and appears to be specifically designed to frustrate Guernsey’s new S157E law.”
The Concept Group statement continued: “ From 6 April 2012, Guernsey QROPS providers have not appeared on HMRC’s QROPS list, although it was strongly believed that S157E schemes met HMRC’s latest regulations.
“The SI makes no attempt to explain why S157E schemes are not acceptable, it simply says they can not be open to non-residents of Guernsey.
“There can be no doubt now, in anyone’s mind, that S157E was unacceptable to HMRC – although we all remain unaware where the difficulty lies.
“Technically, it would appear S157E schemes have been QROPS since 6 April 2012, [in spite of not being] listed by HMRC.
“[But] from 25 May 2012, a S157E open to non-residents of Guernsey will be incapable of technically being a QROPS, due to statutory instrument 1221.”
The Concept Group statement goes on to declare that existing members of Guernsey QROP schemes “are not disadvantaged” by the HMRC decision, and that discussions with HMRC “will continue as will the development of other jurisdictions as QROPS centres.
“New Zealand and EU destinations remain viable.”
It added that legislation being considered in the neighbouring Channel Island of Jersey that is aimed at making it possible for Jersey pension administrators to accept transfers of the UK pensions of non-Jersey residents for the first time, “which was very similar to S157E, must therefore be assumed to be non-compliant with HMRC’s wishes, and very unlikely to be listed by HMRC if an application were ultimately made by a Jersey provider”.
Wendy Martin, director of tax policy in Jersey's Treasury and Resources department, said Jersey officials are in fact due to meet with HMRC officials tomorrow. "We will consider our position following that meeting, once we have a clear understanding of any concerns they may have with Jersey's draft legislation," she added.
Among most popular destinations
Until the publication of HMRC’s revised QROPS list, Guernsey was one of the three most popular destinations in the world for transfers of QROP schemes from the UK.
According to HMRC data obtained last year through a Freedom of Information Act request by Concept Group, Guernsey had been the destination of one in every 10 QROP schemes transferred out of the UK between 2007 – the first tax year during which such transfers became possible under the 2006 “A Day” overhaul of the UK’s pension rules – and the middle of June 2011, making it the third most popular jurisdiction overall.
In the first part of 2011, however, Guernsey moved up to first place, ahead of New Zealand and Australia, receiving almost one in every three QROPS transferred out of the UK during the first few months of that year, the Concept Group data showed.
Much of that business is expected to end up in Malta, a relative newcomer to the QROPS business, which was first recognised as a jurisdiction to which UK pensions could be transferred at the end of November, 2009.