British expats with Canada QROPS have fallen in to a massive tax trap – despite warning signs flagging there night be a problem more than a year ago.
HM Revenue and Customs (HMRC) has delisted all but three of Canada’s 53 QROPS pensions.
Although HMRC declines to discuss issues effecting specific financial jurisdictions, the reason is believed to be that Canadian pension rules allowed retirement savers under 55 years old take money from their fund under special circumstances.
This was allowed under Canadian pension rules, but not under those in the UK.
So HMRC has either cracked down and removed the pensions or the providers have realised they fail to meet QROPS rules.
Guidance face lift
Either way, the risk for British expats with a Canadjurian QROPS is that they could face a penalty of 55% of the value of the fund transferred into the offshore pension because they should have checked the scheme did not break the rules before switching their money.
But this is not a new problem.
In July 2015, 1,650 Australia QROPS were delisted for the same reasons – along with other offshore pensions in other financial centres.
Another warning signal was HMRC giving a face lift to online guidance in October and highlighting that “HMRC can’t guarantee these [pensions] are [Q]ROPS or that any transfers to them will be free of UK tax. It’s your responsibility to find out if you have to pay tax on any transfer of pension savings.”
End of QROPS road for Italy
Besides taking Canadian QROPS off the official list, HMRC also removed 10 France QROPS and 19 Italy QROPS.
Italy no longer has any QROPS pensions.
Canada QROPS savers and their advisers should have realised delisting was on the way and acted earlier to cushion the effect by moving out of schemes that failed to meet QROPS compliance earlier.
HMRC has obviously looked at if QROPS in Canada, France and Italy are compliant – and the likelihood is the tax authority will now investigate compliance in other QROPS jurisdictions.
Retirement savers should act to ensure their QROPS break the rules – and if they do, move the money to a QROPS in a safer financial centre as a matter of urgency.