The British tax man is upholding a long history of failing to support retirement savers by failing to tell them how to avoid a massive tax charge when transferring their UK pension pots to an offshore QROPS.
QROPS – Qualifying Recognised Overseas Pension schemes – have long offered tax, investment and financial benefits to expats.
But HM Revenue and Customs has a chequered history of promoting the service but badly informing taxpayers when they may fall foul of the rules and must pay huge penalties.
In an infamous High Court case in London, HMRC had to withdraw a claim against more than 100 Singapore QROPS investors following severe criticism from the judge.
Controversial new rules
He slammed HMRC for offering misleading guidance and then attempting to charge them a penalty of 55% or more of their investment when the Singapore scheme was deemed to fail QROPS rules.
Now, Chancellor Phillip Hammond has introduced a controversial 25% tax charge for expat retirement savers who may inadvertently break the new rules that demand they must:
- Live in the same financial centre as their QROPS is based
- Live in a European Economic Area (EEA) country while their QROPS is hosted in another EEA country
- Belong to an employer pension scheme
However, HMRC has revealed the agency cannot not ‘provide a list of all the checks required on making a transfer’ to ensure an extra tax charge is not incurred.
Flexible access on the way
Effectively, HMRC is saying to retirement savers that QROPS are perfectly legal and above board, but the responsibility lies with the taxpayer to check the transfer follows all the rules or they could face a massive tax bill.
The new rules are almost a dare to move money offshore into a QROPS – especially as HMRC has five years from the date of transfer to invoke the tax charge.
For expats dubious about the benefits of a QROPS, HMRC says that since April 2006, almost 110,000 expats have switched £8.8 billion offshore from UK pensions.
Besides the qualifying requirements, from April 6, QROPS outside the EEA can offer pension freedoms to retirement savers for the first time.
Only Malta has the legislation in place to provide this now, but Gibraltar’s pension regulator is expected to have new flexible access rules in place by the deadline.
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.
