Guernsey: Guernsey Finance Welcomes Local Response To HMRC ‘QROPS’ Proposals – QROPS
Last Updated: 2 February 2012

Guernsey Finance has welcomed the approach being taken by the Island's government and service providers in response to proposals from Her Majesty's Revenue and Customs (HMRC) which could have significant implications for the future of Qualifying Recognised Overseas Pension Schemes (QROPS).

On 6 December 2011, HMRC launched an eight week consultation on draft legislation which will make amendments to its overseas pension regulations. The new legislation, if enacted, will take effect from 6 April 2012. In response, Guernsey service providers, including the Guernsey Association of Pension Providers (GAPP), are submitting consultation responses which agree that most of the proposed changes are appropriate but lobbying firmly against the introduction of a new Condition 4, which effectively means that residents and non-residents must be treated equally in terms of tax on benefits paid within any QROPS scheme.

"Guernsey Finance welcomes the approach being taken in response to HMRC's proposals," said Peter Niven, Chief Executive at Guernsey Finance – the promotional agency for the Island's finance industry.

"The Guernsey Income Tax Office remains engaged with HMRC and local service providers, including GAPP, are making robust yet constructive responses to the consultation. Most of HMRC's proposals are directed towards eliminating abuse in parts of the overseas pensions system and this is an aspiration which Guernsey fully supports. However, there is a feeling that the new Condition 4 unintentionally runs counter to those objectives by having the greatest adverse impact on those cooperative and compliant jurisdictions, such as Guernsey.

"HMRC's focus in this regard is also surprising because QROPS are designed for pensioners who have permanently left the UK and typically tax is only liable in the pensioner's country of residence. Therefore, with currently no tax liable for payment in the UK and the expectation of this remaining the same under the proposed new regime, so there will continue to be a net nil benefit to its exchequer. What is more, the Foot Report commissioned by the last UK Government highlighted the positive contribution of flows from Guernsey banks into the UK economy and indeed, much of the funds from Guernsey QROPS are invested through the City of London.

"For these reasons, we remain hopeful that HMRC will repeal or amend Condition 4 but we have to be prepared for the possibility that it may be implemented, as currently drafted, from 6 April. As a result, especially given the short timescales for the consultation and the fact that the presence of draft legislation gives it an air of fait accompli, it has been necessary to consider changes to our domestic income tax legislation. It is being proposed that if HMRC pushes ahead with its plans then we will introduce a new, separate pension regime designed to meet the newly proposed criteria for QROPS where both residents and non-residents are exempt from tax on pension benefits."

The Guernsey authorities are making contingency plans to ensure that Guernsey service providers will continue to be able to offer a competitive environment for QROPS should the UK push ahead with its proposed changes. The local Treasury and Resources Department has announced the possibility of creating a new category of pension scheme which, by extending the tax exemption on pension benefits to residents, is designed to meet HMRC's proposed revised criteria for a scheme to be considered a QROPS. The plans for the new, separate pension regime will be considered by the Guernsey Government at its meeting in early March and if approved, will be introduced ahead of any implementation by HMRC of its planned changes from 6 April 2012.

Mr Niven added: "What this shows is that Guernsey recognises the importance of the QROPS industry and is prepared to act collectively, quickly and decisively to ensure that our service providers can continue to satisfy the HMRC criteria for QROPS and thereby offer pensioners reassurance that they will have continuity of access to a compliant and competitive Guernsey product."

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