This week's UK Budget has confirmed that Guernsey is well placed to maintain its position as the jurisdiction of choice for Qualifying Recognised Overseas Pension Schemes (QROPS), according to Guernsey Finance – the promotional agency for the Island's finance industry.
In December last year HMRC launched an eight-week consultation on a series of proposed amendments to the regulations regarding QROPS, with the final proposals outlined in the budget and set to take effect from 6 April 2012.
Guernsey providers submitted consultation responses agreeing that changes to tackle abuses were appropriate but lobbied firmly against the introduction of a proposed Condition 4, which effectively meant that residents and non-residents must be treated equally in terms of tax on benefits paid within any QROPS scheme. At the same time, Guernsey moved forward with creating a new category of pension scheme which, by extending the tax exemption on pension benefits to residents, was designed to meet HMRC's proposed revised criteria for a scheme to be considered a QROPS.
Wednesday's budget revealed that HMRC is pushing ahead with many of its proposed amendments, including tackling abuses. The final legislation has removed Condition 4 but this has been replaced by a new Paragraph 6 which will have the same effect in that any scheme wishing to be a QROPS from 6 April 2012 must offer the same tax relief to residents as non-residents.
Fiona Le Poidevin, Deputy Chief Executive at Guernsey Finance, said: "We welcome the fact that HMRC is taking action to tackle abuses and in particular, jurisdictions which allow 100% commutation, such as New Zealand. This has never been the case for Guernsey pensions, including Guernsey QROPS and indeed, we are very proud of being recognised as a cooperative and compliant jurisdiction.
"It is disappointing but not unexpected to see that while Condition 4 has been removed, there is now a new Paragraph 6 which will have the same effect of ensuring residents and non-residents are treated equally in terms of tax on benefits paid within QROPS scheme.
"Having said that, in Guernsey we have already taken steps to establish a new parallel pension regime where qualifying schemes will offer the tax exemption on pension benefits to both residents and non-residents. It is our belief that this 'fleet of foot' approach means that Guernsey will continue to be able to offer schemes which receive QROPS status beyond 6 April.
"In fact, looking at the final legislation in more detail it is comforting to see that the exemption within the new Guernsey schemes will qualify as tax relief based on the definition within HMRC's amended regulations. This is in contrast with any exemptions which apply by virtue of Double Taxation Agreements (DTAs) and therefore, the final outcome of the changes is probably less favourable than might have originally been envisaged to jurisdictions hoping to rely on an extensive network of DTAs.
"The UK Budget also states that if in the future a jurisdiction makes changes which provide tax advantages that were not intended to be available under the QROPS regime then all such schemes will lose their status. This appears to be simply a restatement of the fact that schemes must always be compliant with the conditions for being a QROPS. We are confident that Guernsey has responded quickly and appropriately to ensure our schemes will meet the conditions for being considered a QROPS from 6 April and our cooperative and compliant approach means that we will not be making any changes which risk losing this status.
"In summary, Guernsey has taken decisive action to ensure that it is well placed to provide a very competitive regime and therefore retain our position as the jurisdiction of choice for QROPS and related products. This is certainly the key message which we will be taking to clients and their advisers when we host our seminar in London on 23 May."
The seminar, titled QROPS: Look no further than Guernsey, is being held by Guernsey Finance and the Guernsey Association of Pension Providers (GAPP). It takes place from 4pm on Wednesday 23 May in the Stevenson Theatre at The British Museum, Great Russell Street and follows on from a series of QROPS events that Guernsey Finance has held in London and other UK cities in the last few years. Anyone wanting more information or looking to book a place can contact Jennifer Baudains +44 (0) 1481 720071 or firstname.lastname@example.org.
For more information about Guernsey's finance industry please visit www.guernseyfinance.com.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.