Last week, the UK government announced sweeping reforms to foreign pensions, including harmonising the tax treatment of income from such pensions and changes to HMRC “eligibility criteria” for Rops to qualify as overseas pensions schemes.
“It is likely Malta will be the main winner from this exercise,” predicted Porter, adding that he expects changes to lead to a further “de-registration of Rops” in line with the thousands of Australian and Canadian schemes which have already been removed.
“Phillip Hammond also confirmed they are re-examining the list of Rop schemes and jurisdictions who are in alignment with the UK’s pension freedoms, which inevitably means there will be further de-registration of recognised schemes, and the qualifying list reducing even further.” he said.
70% rule for Rops
The UK also confirmed it will scrap a rule requiring recognised overseas pensions schemes (Rops) to set aside 70% of funds to provide members with an income for life.
Jason Porter, director of Blevins Franks, which has offices in France, Spain and Portugal told International Adviser that removing the rule will correct an “anomaly” between Rops from different jurisdictions.
“The advent of pension freedoms in the UK, has meant there is currently an anomaly between those schemes which ave adopted these freedoms (i.e. Malta), and those which have always qualified under the 70% provision (i.e. Gibraltar).
“HMRC will be looking to align the rules applied internationally, and to make sure a Rop will be taxed in the same way as a UK pension, including for anyone returning to the UK – currently only 90% of income from a Rops is subject to income tax on a return to the UK, so it is likely this will be lost,” he said.
Flexi-access
Launched in April 2006, Rops emerged to take advantage of the EU’s freedom of capital movement rules, which meant that qualifying scheme countries and territories include EU or EEA member countries, India, the US, or a country or territory with which the UK has a DTA that contains exchange of information and non-discrimination provisions.
“Those jurisdictions outside of this qualification had to satisfy the requirement that, at the time of the transfer, at least 70% of the funds transferred will be designated for the purpose of providing the member with an income for life,” explained Porter.
He added that as the Rops set-ups grew in popularity around the world “in normal taxing jurisdictions and tax havens alike”, UK governments regularly intervened, to clampdown on what they saw as ‘pension-busting’ or other tax avoidance.
“In addition, successive UK governments have consistently sought to impose UK pension legislation requirements on Rop jurisdictions, and many countries have found the rules the UK requires a Rop to observe are incompatible with their own domestic pension legislation”.
At present, only Malta and Australia-based Rops offer flexi-access, while Gibraltar and Guernsey Rops have restricted access until the age of 55.
As a result of the changes, further details of which will be released in the Finance Bill on 5 December, Rops registered in certain non-EU jurisdictions such as Isle of Man and Guernsey, which have previously been banned from offering flexible access, will now be able to do so once the 70% rule is scrapped.
