Details of the proposed changes have not been revealed, but the Guernsey Association of Pension Providers (GAPP) said it was “continuing to work closely” with Guernsey’s Income Tax Office on a “solution” to potential problems thrown up by recently-proposed changes to the UK’s Qualifying Recognised Overseas Pension Scheme legislation.
“Unless the proposed changes are withdrawn [by the UK government], or amendments made to Guernsey’s own tax regime for pension schemes, there would be serious implications for individuals who plan to move from the UK and wish to transfer their UK pensions to Guernsey,” GAPP added in a statement.
As reported, HM Revenue & Customs last month surprised QROPS providers with a package of proposed changes to the legislation which governs how UK taxpayers may transfer their UK pensions overseas when they move abroad for good. The proposal sent shock waves through such financial centres as Guernsey, the Isle of Man and Malta, where QROPS providers have been trying to assess how their businesses are likely to be affected.
A consultation period ends on 31 Jan, with the revised legislation expected to take effect from 6 April.
‘Condition 4’
At issue for Guernsey’s QROPS providers in the HMRC proposals is what is known as "Condition 4" of a form that QROPS providers use to register their QROPS schemes with the UK tax authority. This new condition would require all jurisdictions in which QROPS are administered to tax the pensions of local residents at the same rate that QROPS beneficiaries are taxed at.
In Guernsey, residents pay a 20% tax on their pension income, after taking their tax-free lump sum when they begin taking their pensions, while non-residents with QROPS administered there do not pay tax in Guernsey, but in the jurisdiction in which they live.
As Konrad Friedlaender, a pension expert at Carey Olsen, noted in an analysis of the situation on the Channel Islands-based law firm’s website, this leaves Guernsey with just two options.
"The first is to tax both Guernsey and non-Guernsey residents in the same way on their Guernsey source pensions income…[which] would immediately place Guernsey at a competitive disadvantage when compared with QROPS jurisdicitions that may not impose such a tax.
"The second option would be for Guernsey’s exisiting system…to provide that no Guernsey tax would be payable on pension distributions irrespective of where the member resides."
The second option, Friedlaender added, "is cleaerly the more desirable, provided it can be established in a way that would protect Guernsey’s income tax base."
‘Full commitment’
In the GAPP statement, GAPP chairman Stephen Ainsworth was quoted as saying the organisation had “the full commitment of the States Income Tax Office and senior policy makers to consider ways to resolve any potential issues that may be contained in the draft legislation”, and that he was “delighted with the progress we have made in coming to a solution”.
“I am confident that Guernsey will remain at the forefront of international pension provision as a result”.
