Autumn Statement 2016
In the Autumn Statement 2016 the Chancellor indicated that further clarification to the QROPS regime would be issued in the Finance Bill on 5 December 2016.
These changes are expected to bring the tax treatment of QROPS into line with UK pensions and the following are the main points, with The QROPS Bureau's comments in italics :
1. Bringing foreign pensions and lump sums fully into tax for UK residents, bringing them into line with domestic pensions. This is expected to bring an end to the current situation whereby only 90% of overseas pension income is taxable in the hands of a UK resident, a change which has been anticipated by industry experts for some time.
2. In a statement published on the day following the Autumn Statement, the UK Treasury said it will "update the conditions that foreign pension schemes must meet to get UK tax relief on contributions and transfers, by removing the requirement for 70% of transferred funds to be used to provide the member with an income for life." This change has been anticipated for some time following the introduction of pension freedoms into the UK pensions regime in April 2015. The changes are likely to take effect from April 2017, although the exact details will be announced in the Finance Bill on 5 December.
3. The "member payment provision period" will be extended from 5 years to 10 years. This gives HMRC taxing rights over a non UK resident's UK tax relieved pension fund for a longer period and it is thought that this has primarily been brought in to help control individuals trying to use QROPS to facilitate flexible drawdown without paying UK tax, particularly in view if the withdrawal of the 70% rule.
4. Updating the eligibility criteria for foreign pension schemes to qualify as recognised overseas pension schemes for tax purposes. This point will give HMRC scope to amend the QROPS rules to restrict any further tax avoidance.
These latest announcements are further evidence of HMRC's intention to ensure that the QROPS rules are not abused. Greater clarification will give clients and their advisers certainty over the rules so that the regime can be used as intended for clients in appropriate circumstances.
The QROPS Bureau will issue further clarification and analysis as soon as it becomes available. In the meantime please let us know if you have any questions.