British expats can expect the eligibility rules for Qualifying Recognised Overseas Pension Scheme (QROPS) to tighten following Chancellor Philip Hammond’s 2016 Autumn Statement.
Hidden as an add-on in a clause in the reams of documents issued by The Treasury is a warning the rules for QROPS will change – probably from the start of the 2017-18 tax year on April 6.
The policy advice is unclear about exactly how the rules will change. [See Para 4.21 Page 38 of the 2016 Autumn Statement]
This will likely be revealed in a consultation document from HM Revenue and Customs (HMRC) in the coming weeks.
No timescale was placed on the consultation or when any proposed changes will take effect.
What the Chancellor said about QROPS
“The tax treatment of foreign pensions will be more closely aligned with the UK’s domestic pension tax regime by bringing foreign pensions and lump sums fully into tax for UK residents, to the same extent as domestic ones” says the Treasury document.
“The government will also close specialist pension schemes for those employed abroad (“section 615” schemes) to new saving, extend from 5 to 10 years the taxing rights over recently emigrated non-UK residents’ foreign lump sum payments from funds that have had UK tax relief, align the tax treatment of funds transferred between registered pension schemes, and update the eligibility criteria for foreign schemes to qualify as overseas pensions schemes for tax purposes.”
Several of these points will impact on QROPS which are defined as registered pension schemes under UK tax law.
Savings and investments update
Other changes for savers and investors
- Zero-rate income tax band for savers remains at £5,000 for the year starting April 6, 2017
- ISA savings limits go up from £15,240 to £20,000 from April 6, 2017
- The money purchase allowance – The maximum a retirement saver can pay into a pension after starting drawdown – is proposed to drop from £10,000 to £4,000 to curb tax avoidance.
Although the government wants to offer the over 55s tax relief on pension saving if they are rebuilding their retirement funds, too many savers are taking tax-free pension cash and recycling the money to gain double tax relief, says the Chancellor
- Triple lock for state pensions – The Chancellor sounded the death knell by announcing the triple lock will stay until 2020 but will then come up for review.
The scheme is considered too favourable to pensioners, said the Chancellor, while critics have labelled the minimum 2.5% a year cost of living rise for the state pension as too expensive to sustain
- Tax incentives for investing – Several measures to tidy up the administration of Seed Enterprise Investment Scheme (SEIS), the Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCTs) were announced but no changes to the generous tax breaks or investment limits
- Social Investment Tax Relief (SITR) – From April 6, 2017 the amount of investment social enterprises aged up to seven years old can raise through SITR will increase to £1.5 million.
Other administrative changes will also come into force and a government review of how the scheme works will take place by 2019.
- Pension scams – Hammond confirmed that pension advice cold calling is to be banned with a consultation on the way to discuss options to tackle scammers and to stop them fronting frauds with self-administered small schemes (SASS)
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.
