UK: The QROPS Qnundrum

Last Updated: 7 February 2012
Article by James Quarmby

Originally published January 2012

1. What did HMRC say about QROPS?

Essentially what they are saying is that they support the concept of the QROPS, but they think they are being abused and will therefore introduce more restrictive rules, so that fewer schemes qualify. There are also some changes to the provision of information rules.

2. What is the effect of these new rules?

Many of the most popular jurisdictions for QROPS - Guernsey, Isle of Man, New Zealand, Australia - will no longer be able to offer QROPS post April 2012 unless they radically change their domestic legislation. This means that QROPS in those jurisdictions will cease to qualify after that date.

3. So, what are these changes then?

Pensions law is wonderfully complex and the rules concerning QROPS are no exception. In order to be a QROPS a scheme must be all of the following: (a) a pensions scheme; (b) an 'overseas pensions scheme' (OPS); (c) a 'recognised overseas pensions scheme' (ROPS); and a 'qualifying recognised overseas pension scheme' (QROPS).

What HMRC has done is to change the rules governing OPS, ROPS and QROPS. In respect of the former there has been a tightening up of the 'regulation test' which most providers - and jurisdictions - will not be too bothered about. However, it is the change in the 'tax recognition requirement' that is causing the grief. The new rules provide that to be an OPS four conditions must be met. The first three are no surprise, since they were in the old rules - it's the final one which is the show-stopper.

This new condition states that where there is an exemption from tax in respect of benefits payable from the scheme then this exemption must also be available to members who are resident in the home jurisdiction, regardless of whether the member was a resident in that jurisdiction when he joined the scheme or at any time when he was a member. Now that's a real problem for a number of jurisdictions, whose domestic legislation doesn't comply.

If you manage to meet the new requirements to be an OPS then you next need to consider the new rules for ROPS. The changes to the ROPS rules are, mercifully, only directed at schemes in New Zealand. I'm not sure what New Zealand has done to incur the wrath of HMRC, but it has. So, unless your NZ scheme is a "Kiwi-Saver" (no sniggering please) then the requirement is that 70% of the scheme funds must be used to provide a pension.

So, if you satisfy the new rules on OPS and ROPS you can, finally, consider the new rules for QROPS. Are you enjoying this? I hope so, because I'm not. The new rules effecting QROPS are mostly of an administrative nature and the only exciting development (if you can call any of this exciting) is the extension of the 5 year reporting requirement to 10 years.

4. What shall we do about existing QROPS?

If your QROPS is in a jurisdiction that you know or suspect will not qualify post April (for instance in Guernsey) then you have a dilemma. Do you move it or leave it where it is? You could move your QROPS to a jurisdiction (such as Malta) which does meet the new tests and then it will still qualify, subject to the new rules for QROPS. If you don't move it then your QROPS will no longer be a QROPS after April - it will instead be a QNUPS. We don't think this will trigger any tax charge at that point, although HMRC has yet to confirm this point. We also don't know if the new information provisions will apply to schemes which no longer qualify as a QROPS. Logic would say not, but since when has logic been a consideration in pensions law?

I would expect Guernsey, Isle of Man and other smaller jurisdictions to take quick action to change their legislation, otherwise this would be a disaster for them. The legislature in other jurisdictions is likely to be less responsive and, as such, the scenario outlined above more likely to come true. If you have a QROPS then you may wish to wait for a little while before making a decision as I expect that, right now, those little islands are brewing huge pots of tea and sharpening their drafting pencils in readiness for a change in their domestic taxation law.

5. Do we set up any new QROPS before April?

The short answer is yes, why not. However, you may need to think carefully about the jurisdiction you choose.

6. Where does this leave QNUPS?

The QNUPS legislation is essentially unchanged by these new rules, so if you have a QNUPS you will be OK. Of course, you may currently have a QROPS which will magically turn into a QNUPS with effect from 6th April. This will no doubt be a novelty for you but, subject to a few complications, it shouldn't cause too many sleepless nights.

This month's household tip

I don't know about you, but there was a lot of baking going on in my house over Christmas. However, it's all very well making a lovely cake or pie, but if you can't get it out of the tin without totally mutilating it with your spatula then it's rather a waste of time. My tip - and this is one which was employed only very recently - it to sprinkle flour in your baking dish, thereby creating a handy barrier between the tin's surface and your pastry/cake mix/whatever. When the baking is done, just turn the tin upside down and the little beggar will slide out beautifully. Do remember to put a plate underneath the inverted tin, otherwise you will be eating your dinner off the floor. Yes, that's happened to me as well.

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