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Summary of New QROPS Rules - issued 19 December 2014

Summary of New QROPS Rules - issued 19 December 2014

Overseas Pension Schemes (Miscellaneous Amendments) Regulations 2015

Introduction

These regulations and an explanatory memorandum were issued by HMRC on the 19 December 2014. Being the Friday before Christmas, the new rules, which had been eagerly anticipated by QROPS specialists, slipped under the radar a little and were not widely reported until the first working week of 2015.

Despite this, the new rules are very positive for individuals wishing to transfer their UK pensions overseas. There are certain changes to the rules to prevent abuse of the increased flexibility. The QROPS Bureau have prepared an analysis of the rules below.

Analysis of the new rules

Another New Acronym – QOPS

QOPS simply means Qualifying Overseas Pension Schemes. The new rules state that pension contributions to an OPS can receive UK tax relief. The UK Lifetime Allowance will obviously apply to this but it is a new benefit for overseas pension schemes and further reinforces that fact that HMRC have no desire to prevent a UK resident from participating in an overseas pension scheme.

Confirmation that transfers of UK tax relieved pensions can be made tax free to QROPS

The rules confirm that transfers of UK tax relieved pensions can be made tax free to QROPS (ie with the 'R'! ) - the scheme must meet HMRC's conditions to be a qualifying recognised overseas pension scheme.

Removal of requirement to use 70% of the fund to provide an income for life.

The new rules state that funds which have received UK tax relief are no longer required to use 70% of the funds to provide an income for life for the member.This is to bring QROPS rules in line with the new UK registered pension rules.

Requirement for schemes established outside the European Economic Area (EEA) to be operated by a regulated pension provider.

A new rule is that schemes established outside of the EEA that are not regulated as a pension scheme by a body in their home country must be operated by a pension provider that is regulated to provide pensions and is regulated to provide the scheme in question.It is not yet known how these rules will be interpreted but they are likely to be positive for jurisdictions which have very clear pensions regulation.

Retirement Dates

The new rules state that pension benefits arising from UK tax relieved funds must be payable no earlier than they would have been under the UK registered pension scheme rules.
This rule is intended to prevent abuse of the flexible drawdown rules but it will impact on some jurisdictions such as Malta and The Isle of Man who have previously been able to say that they can pay out benefits earlier than under a UK scheme due to their local rules.

QROPS Scheme Administrator Reporting

The rules set out the information that a scheme manager of a QROPS is required to provide and removes the need, in the majority of cases for the scheme manager, when reporting information, to consider whether the individual is (or has been in the last five full tax years ) UK resident. It also changes the timing of the reporting of information so that a scheme manager of a QROPS has to report a payment within 91 days of the payment being made.

Individual Member Reporting Requirements

There is a new requirement for individual members making a transfer from a UK registered pension scheme to a QROPS to supply information to the UK registered pension scheme when the individual wishes to flexibly access their pension rights.This is to enable the UK registered pension scheme to meet its reporting requirements to HMRC.

Double Taxation Treaties

For a transfer to a QROPS to be made free of tax the scheme receiving the transfer must be operated in a country which has either a double taxation agreement or a tax information exchange agreement with the UK.The majority of the jurisdictions from which QROPS are operated do have a double tax agreement or a tax information scheme with the UK.

Summary

The new rules issued under the Overseas Pensions (Miscellaneous Amendments) Regulations 2015 are positive in that they bring the QROPS regime in line with the new UK pensions regime as from April 2015 as regards flexible drawdown. This means that individuals will still be able to benefit from transferring their pension to a QROPS in appropriate circumstance, without losing any of the advantages of the flexible drawdown regime.The new rules introduce some controls to prevent the abuse of the flexible drawdown facility but none of these appear to be unreasonable.

Please see the attached PDF for a downloadable version of this note.

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