Qualifying Recognised Overseas Pension Scheme (QROPS) rules will change with the publication of Chancellor George Osborne’s pension freedom bill.
The long-awaited outline proposals were released by HM Revenue & Customs (HMRC) in an eight-page document.
Only a few lines related to QROPS pensions, stating:
- The government intends to make changes to the Finance Act 2004 to give HMRC powers to demand information about QROPS pensions from current and former scheme managers
The announcement did not give any further details of exactly what reporting powers the new act would give to HMRC.
- Several changes are underway with other sections of the Finance Act 2004 and Income Tax (Earnings and Pensions) Act 2003 (ITEPA) to let QROPS make payments to investors from uncrystallised funds and to test the withdrawals against the lifetime allowance
However, the proposals do say that the new rules will place QROPS ‘broadly in line with UK pensions”.
The amendments will be made under the new Taxation of Pensions Bill 2014.
Unclear rules
The full details of the amendments will become clear as the bill passes through Parliament, as it may be subject to change by MPs and the House of Lords.
For UK onshore pensions, the provisions allow retirement savers over 55 years old to drawdown single or multiple lump sums from their schemes.
The first 25% of each withdrawal will be tax free and the balance of 75% will be taxed at the pension member’s marginal rate.
If the withdrawals exceed the lifetime allowance, which currently stands at £1.25 million, extra tax rules will apply.
The draft rules are unclear about whether QROPS savers can make withdrawals at the marginal rate they pay income tax in the financial jurisdiction where they are tax resident.
A further anomaly is some QROPS jurisdictions allow a 30% tax-free lump sum.
Grappling over tax solutions
The outline of the proposals published by HMRC does not state whether the tweaking of pension rules will include bringing the QROPS tax-free lump sum ceiling down to 25%.
Overall, the latest details give scant information for QROPS investors and leave some important tax questions unanswered.
This could be because The Treasury and HMRC are still grappling over the solutions.
“The Chancellor wants to change a pension into a bank account for the over 55s,” said Andy Zanelli, head of retirement planning at pensions firm Axa Wealth.
“The proposals let retirement savers take multiple lump sums while leaving the rest of their pension invested.”
