Changes to QROPS to be introduced in April 2012

by Ray Clancy on December 13, 2011

QROPS must now comply with new requirements to receive HMRC approval

The UK government has revealed a series of new measures to highlight any potential abuse of the QROPS (qualifying recognised overseas pension scheme) system which allows pension savers to transfer their pension schemes overseas.

The QROPS system was designed to allow individuals permanently living overseas to transfer their UK pensions to a pension based in their new country of residence. It was meant to limit individuals to lump sum and pension benefits which are broadly equivalent to the benefits that would have been available to them had they left their pension in the UK.

Since the system was introduced some QROPS arrangements have been promoted as an opportunity to avoid tax with alleged promises of access to 100% of the pension scheme as a tax free lump sum.

The changes announced by HMRC include requirements for the transferring saver to provide more detailed information ahead of the transfer, including a declaration that they understand the potential for significant tax penalties.

The new rules will come into force from 06 April 2012 and will require the UK scheme to pass this information, and more, to HMRC within 30 days of the transfer taking place. Under the old rules only limited information was reported to HMRC and it could be up to 21 months before HMRC were notified of a transfer.

The rules will also require the overseas scheme to report all lump sum payments made from their scheme in the 10 years following the transfer. The old rules only required reporting if the individual had lived in the UK in the last five tax years. If an individual had left the UK over five years before the transfer took place there was no requirement to make any report to HMRC.

In addition, the new rules mean that the overseas provider must provide more information about their scheme and the individuals running the scheme. HMRC will, for example, be able to request the names and addresses of the directors of the QROPS provider.

And the QROPS itself must comply with new requirements to receive HMRC approval. Any tax exemptions offered by the QROPS to non residents must also be available to residents.

‘HMRC has made it clear that it intends to introduce these rules to deal with abuse of the QROPS system. The new reporting requirements will provide HMRC with the granularity it needs to immediately identify transfers it suspects are being made for what it considers inappropriate reasons,’ said Gareth James, technical marketing manager at A J Bell.

‘It will be interesting to see how the new rules impact on the number of QROPS transfers. If we see a significant reduction it will provide HMRC with an idea of the number of transfers which have been made in line with the Government’s original intentions for the QROPS regime, and also the extent of the abuse of the system since it was introduced in 2006,’ he added.

{ 1 comment… read it below or add one }

Jeremy Gordon December 19, 2011 at 4:58 am

Just a small point but the time to report will be 60 days, not 30 days – still significantly shorter than before though.
So far, only the draft regulations have been published and we can see from this that the reporting requirements are changing.
However, the concern is that when the Finance Bill 2012 is published it will contain amendments which continue the impact of UK tax regime on transferred funds for 10 years instead of the current 5 years of non-residency. And it may attempt to be retrospective. We will have to wait and see what happens.
The significance of these changes will be different depending on which country the expat is migrating and transferring the UK pension to. For migrants from the UK to Australia I have written an article covering the main points with an update about the proposed changes.

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