Marlborough

Yesterday HMRC released a ‘consultation’ document in relation to The Overseas Pension Schemes (Miscellaneous Amendments) Regulations 2012 which will form part of the 2012 Finance Act and are due to be passed into law on the 6th April 2012. The ‘draft’ regulations detail some potentially catastrophic changes to QROPS provision that will affect, if passed as drafted, virtually every future member of QROPS. Whilst this is supposed to be a consultation document it has been released, unusually, with full draft regulations, which would certainly lead one to believe that the consultation exercise is merely a formality.

The main points of the changes are as follows:

• The current trustee reporting requirement to HMRC for benefits etc paid from a QROPS will be extended from 5 years of non-UK residency to 10 years after the member transfers out of a UK registered pension scheme

• Any distribution from a QROPS within 10 years of the member becoming non-UK resident must be reported within 60 days for every single payment or transfer

• UK residents may be punitively taxed should they be a member of a QROPS

• Third party QROPS jurisdictions (arrangements where the member lives in a different territory to their QROPS provider) will be required to withhold tax from non-resident members in the same way as they would for resident members

• All jurisdictions will have to abide by the 70% rule – to use at least 70% of the transferred value to provide an income for life

• Potential members will have to lodge an acknowledgment of any potential adverse tax consequences with HMRC before they are allowed to transfer

• UK registered pension schemes will have to notify HMRC of any member transferring to a QROPS within 30 days of transfer

• Pension schemes that are not registered for tax purposes in their country of establishment will no longer be recognised

The intention of these proposed amendments, as highlighted by HMRC, was to prevent so called busting of pensions. The main response to this is that HMRC are using a hammer to crack a nut.

The introduction of a rule requiring scheme managers to tax non-resident members in the same way as residents will massively complicate the lives of many retired ex-pats. In the past they could domicile their pension in a third party jurisdiction, receive their income gross and simply declare it on their tax return. They will now have to suffer withholding tax and offset it with the use of a double tax treaty (should one be available) to avoid paying tax in both jurisdictions. However, this will be little comfort to clients that live in zero or lower tax jurisdictions, as they will not have anything or enough, to offset.

So what can we do?

It’s important to remember that these are still draft regulations and the international community (both providers and clients) will have an awful lot to say – these regs target virtually all jurisdictions along with current & future members so there will certainly be a backlash. It is still too early to say how this will be approached but I can guarantee there will be a cohesive response from all concerned.

What is Marlborough doing about it?

One of the best things about dealing with a truly independent trust company is the speed that we can react. The draft consultation was released around noon on the 6th December, by 13:00 we were in communication with our tax advisors, by 14:00 the Board were briefed and by 16:00 we were in talks with the Guernsey Income Tax Authorities who are now in deep discussion on how to confront this unprovoked attack on legitimate QROPS providers.

Rest assured, we are very much at the coalface with this and will release regular updates as further detail emerges. In the mean time it is business as usual and we are, in fact, gearing up for a massive influx of business as the draft regulations do not appear to be retrospective thus providing grandfathering provisions for existing members, so if you have a client that is suitable for QROPS it may be best to act well before the 5th April.