Jon Greer, pensions technical manager at Old Mutual Wealth, said the potential incompatibility of full flexibility and inheritance tax-exemption on Qualifying Recognised Overseas Pension Schemes is likely to be addressed as part of a “wider review of the IHT exemption that applies to overseas schemes”.
“This may be driven by a concern that the original policy intention is not being met,” he said. “What we can glean is that the Revenue has not forgotten to amend the regulations which currently mean a fully flexible QROPS will lose its IHT exemption.”
His comments come after it was revealed last month that the Revenue had failed to vary or remove the requirement for QROPS to provide 70% income for life contained within SI 2010/51, the document which also sets the requirements for a scheme to qualify for IHT-exemption.
This could potentially mean those who choose to embrace QROPS full-flexibility from April this year no longer qualify for IHT-exemption.
Concern
Similarly, Paul Davies, director at Global QROPS, said a review into the schemes’ IHT-exemption is likely in the wake of April’s reforms.
“It is a big time for the schemes, and as such a review would seem logical,” he said. “The concern with QROPS is that people are using them purely to avoid IHT.
“If HMRC are concerned that the schemes are being used in this way, then it seems an apt time for them to launch a review.”
However, he said a review could have “knock on effects” which see expatriate retirees using QROPS for entirely legitimate means being impacted by the outcomes of a review focused on mis-use.
“Often, when there is a rule change it affects everyone,” he added.
In December last year, HMRC issued draft legislation to allow QROPS the same flexibility in drawing pension benefits as will apply to UK pensions from 6 April.
It proposed the allowance of up to 100% lump sum withdrawals from the schemes, removing the previous requirement for 70% of the funds in a scheme to provide an income for life.
Shortly after the announcement, Malta and Guernsey altered their local pension legislation to accommodate the changes.
