HMRC’s announcement that it is proposing legislative changes to the existing QROPS’ regulations creates two main areas of concern for the entire offshore pensions industry. In an attempt to thwart pension-busting practices, it has set it sights on the governing legislation of offshore jurisdictions.
HMRC is proposing that, as from 6th April, 2012, anyone with a QROPS should not be able to receive more tax relief than those residents in the jurisdiction where the QROPS is based. This means that well run jurisdictions such as Guernsey will have to decide between a zero or 20% tax rate on QROPS for everyone – they will no longer be able to differentiate. It puts the onus on the finance centers’ own legislature to change their tax regulations to encompass QROPS or, what… pull out of the market altogether?
Not content with upsetting the legislators and regulators of offshore jurisdictions, HMRC is further proposing to extend the scheme’s reporting requirements by doubling the five year non-resident rule to a 10 year regime of reporting that will commence from the date of pension transfer – not the day of departure from the UK. That’s a long time for any individual and such a stipulation alone may well end up dissuading expats from moving their pension funds into a QROPS’ arrangement.
While most advisers knew changes to stop QROPS exploitation were afoot, advisers can be forgiven for not seeing such radical changes coming. No one did – no legislators, trustees, product providers and certainly no advisers who are left to explain the situation to their clients. So having invited everyone to the party, HMRC seems jealous of how much fun everyone is having – proven by the large sums now invested in the QROPS’ sector across a number of recognised jurisdictions.
But life, and in particular, tax legislation, can show a humorous side. Who would’ve thought that HMRC asserting its force would bring New Zealand, as a QROPS’ jurisdiction, back in vogue? Having been the black sheep of the industry accused of offering zero-tax, pension-busting routes, were these proposed changes to be adopted, New Zealand’s QROPS’ offering could become flavour of the year due to the fact its zero tax rate applies to residents and non-residents.
So where are we left in the interim? While it goes against the grain of good advice offered by many advisers on the legitimate benefits of QROPS in well regulated centers, there is some hope that modifications to these proposed changes can be achieved by the offshore pensions industry collectively lobbying HMRC with well-reasoned objections.
And while some are predicting a rush to take up QROPS before the 6th April 2012, there may be a good argument for holding on to see what response comes from providers and jurisdictions and, based on this, to see if HMRC makes any adjustments to proposals. Advisers who think that current proposals to change legislation will both complicate and overly damage the QROPS market can also add their own tuppence worth – consultation is open until 31 January, 2012. After all, without international jurisdictions providing a recognised and regulated base for QROPS’ providers to operate from, there really won’t be a product to market.
David Howell is a director at Guardian Wealth Management
