As the dust from The Panama Papers tax controversy dies down, many expats are wondering if their offshore pensions and savings will get them into trouble for tax avoidance.
Billions of pounds are held offshore by British expats in Qualifying Recognised Overseas Pension Schemes (QROPS) and overseas accounts of familiar British banks and building societies.
Holding cash or investments overseas is not an avoidance issue for anyone, providing any interest or capital gains on the money have been properly reported to the tax authority in the place where the expat is resident.
The problem comes with tax evasion, which is the dishonest and deliberate misreporting or failing to declare income and gains.
QROPS pensions, for instance, are perfectly legitimate tax shelters for pension savings in just the same way as UK workplace pensions or SIPPs are for retirement savers still tax-resident in Britain.
Good tax avoidance
These pensions are even supervised closely by HM Revenue and Customs (HMRC) in the UK even though they are based in foreign countries and managed by their financial regulators.
No QROPS are based in Panama or the British Virgin Islands – two of the financial centres taking the biggest slating from the media leaks.
The fall-out from The Panama Papers shows that there is good and bad tax avoidance.
Good tax avoidance is when governments steer expats down a financial path, such as allowing transfers to QROPS pensions.
Bad tax avoidance is setting up an offshore arrangement designed to deliberately conceal your financial affairs.
The time for traditional tax havens is running out.
Common reporting standard on the way
The new common reporting standard (CRS) that starts later this year allows the tax authorities in more than 100 countries to automatically tell each other about who controls cash and investments across borders.
The UK, USA, all the European Union nations and most other leading financial centres around the world are already signed up.
Any expats who have failed to declare the full extent of their finances to their local tax authority needs to check out the list of countries applying the CRS and should take steps to tidy up their affairs immediately.
But do not worry about QROPS pensions – as long as HMRC agrees the pension is a QROPS, they present no problem.
Further 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.
