A former HMRC lawyer claims QROPS offshore pensions for expats may break EU laws – and have done so for nearly a decade.
Robert Waterson, of lawyers RPC, once worked for the HMRC Solicitor’s Office and is regarded as an EU law expert.
He argues that new rules introduced in April 2017 that allow switching cash from UK pensions to QROPS based in the European Economic Area are designed to make the schemes ‘EU proof’ but still break transfer of capital rules.
His view is the rules not only apply to capital transfers within the EU but to countries outside the bloc as well.
Unlawful exit charge
“The system which existed before the 2017 Budget did not comply with the UK’s obligations under the EU treaty. It failed due to the uncertainty which was built in to the system by HMRC and the dissuasive effect this had on those considering transferring their pensions.
“The changes introduced by the 2017 Budget compound the problem by introducing an unlawful exit charge,” he writes in an article for legal website Lexology.
The exit charge is a 25% transfer tax on pension cash switched to a non-EEA QROPS.
In the article, Waterson comments that HMRC has not prepared for the QROPS market to take off the way it has.
According to the latest figures from HMRC, around 108,000 expats have transferred almost £8 billion into QROPS since April 2006, when the pension scheme was introduced.
Uncertain and expensive
“When the legislation was drafted, HMRC expected that the provisions would only be of interest to a small number of people and that the number of QROPS would consequently be low. They were mistaken and HMRC has spent the intervening years attempting, with varying degrees of success, to get the QROPS genie back into the bottle” he writes.
“This latest attempt is expected to net HM Treasury £60m-£65m of additional revenue year on year to 2021/22. Interestingly, HMRC’s policy document indicates that these figures take into account what it calls the ‘behavioural responses of both individuals and pension providers to the changes’.
“This estimate appears strange in its uniformity. The real intention appears to be to make the regime so uncertain and expensive that only a small number of people would ever consider using it.”
QROPS Information and Guidance
For more information about QROPS and the benefits it provides, download the iExpats QROPS Guide or complete the Get Advice form.
