Hundreds of Guernsey Qualifying Recognised Overseas Pensions (QROPS) that were suspended when tax rules were changed by HM Revenue & Customs may be back in business soon.
More than 300 Guernsey pensions lost their QROPS status in April 2012 because they offered different tax incentives to non-residents.
Now, the States of Guernsey is expected to approve tax changes for the Channel Island that will allow the QROPS to apply for reinstatement.
The island’s government has put together a proposal to change how QROPS pension payments are taxed, bringing them into line with pensions for residents.
At the time, Guernsey was among the leading QROPS destinations for British expats and international workers looking to transfer their funds out of a UK pension.
Although Guernsey has a thriving QROPS industry with 310 different pension schemes, 307 were suspended by HMRC because of the tax disparity.
Since then, more than 50 new schemes have met the qualification rules, giving Guernsey 56 current active QROPS.
The rule change also hit a number of other QROPS in the Isle of Man and New Zealand. Plans by another Channel Island to offer QROPS to non-residents on similar lines to the Guernsey QROPS were also scuppered.
Stephen Ainsworth, president of trade body the Guernsey Association of Pension Providers, explained providers backed the proposal.
“This is a step forward that will help Guernsey QROPS win back their status and allow many to open for transfers from onshore pension providers,” he said.
Third party QROPS
“QROPS are an important part of the financial services sector here. The plans may still give some providers issues if they have members outside the Channel Islands and the UK. Providers are looking at any unintended consequences the changes may bring if the plan is approved.”
The tax issue at the time involved ‘third party’ QROPS. These are pensions for expats and international workers who live in one financial centre but base their QROPS in another financial centre.
HMRC considered many offered tax incentives to non-residents that were not available to residents in the same scheme, and that because of that disparity, the QROPS broke qualifying rules demanding all scheme members should face the same tax on pension payments.
Gibraltar QROPS were also voluntarily suspended by the local providers as they faced a similar problem. This was overcome by law changes in Gibraltar.
Since then, Gibraltar has offered third party QROPS to non-residents and has seen based there grow from 10 to 23 since April 2012.