How HMRC’s Clampdown has Bolstered the QROPS Market

This time last year the UK’s tax authority, HM Revenue & Customs (HMRC), issued new rules for Qualifying Recognised Overseas Pensions Schemes, or ‘QROPS’, a type of pension that’s based outside the UK but which is able to receive transfers from UK pension funds and which is still recognised by HMRC.

Described at the time as a ‘clampdown’ by the British government as it scrapped more than 400 schemes off its lists, how have the beefed-up regulations changed the market for QROPS?

“The QROPS market has undoubtedly benefitted from the guidelines which came into effect in last year’s Finance Bill.  The reforms have made the industry tighter and offered even more client protection and as such, QROPS have become more attractive for those seeking to move their pension pots outside of the UK,” explains Simon Jones

“The scope of HMRC’s new rules is a clear indicator that QROPS are becoming ever-more mainstream as a workable, highly efficient option for expatriates, something which has been borne out by the steady increases in demand year-on-year since they were introduced in Aril 2006.”

He continues: “It was particularly useful, for clients and advisers alike, to have the rules clarified on what made for a legitimate scheme and what didn’t, and the amount that can be taken as a tax-free lump sum.

“The removal of any grey areas in financial services will, of course, always create a better, stronger market that will have wider appeal, and this has been the case with QROPS since the introduction of the new regulations.

The New QROPS Rules

So, what were these rules that have helped shape and mature the pension transfer market?

HMRC implemented a requirement for non-residents and residents of a jurisdiction to be given the same benefits and dealt with, in tax terms, in the same way.

In addition, the new regulations demanded that payments must be registered with the UK tax authority for ten years, although this does not affect the tax treatment of QROPS during and after the member has been a non-UK tax resident for five consecutive tax years.

The rules also permitted schemes to continue to allow tax free lump sums to be taken, provided that 70 per cent of the funds were kept solely for retirement income.

Whilst many financial experts have extolled the virtues of these rules for strengthening the QROPS market by closing loopholes, amongst other things, it hasn’t been all plain-sailing.

For instance, the HMRC scrutiny led to the demise of Guernsey’s QROPS industry – which came as a surprise to most industry insiders as it’s highly-regulated – as it was de-listed as an approved QROPS jurisdiction.

More to Come?

Simon Jones tells iExpats that he believes more tightening is on the way.

“The new rules clearly show that HMRC is, quite rightly, determined to improve transparency and compliance in the pension transfer sector.  With this in mind, I would expect further new guidelines to be issued in the future as the market continues to develop.  Indeed there has already been a hint of possible extra rules and additional powers to intervene when things aren’t being done properly in the draft 2013 Finance Bill,” says Simon Jones.

He concludes: “I would champion any new measures that create a fortified QROPS market because in our increasingly globalised world, where more people than ever live outside their country of birth, there will be a growing need for practical, credible and regulated cross-border pension solutions.”

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