HMRC’s QROPS list has recently been amended to clarify that a pension scheme’s inclusion does not guarantee that it is qualified. According to the rules though, a QROPS scheme is under the obligation to notify HMRC should it no longer meet the required standard.
QROPS rules can be broken down into the following sections;
- HMRC QROPS rules
- Recognised Overseas Pension Scheme Conditions
- Inheritance Tax Conditions
- 70/30 Rule
- Pension Age Test
- 5 Years Rule
- Reporting requirements
- No longer subject to Lifetime Allowance (LTA) charge
- QROPS rule changes
In summary, a QROPS scheme typically has to;
- Not allow income withdrawal prior to the UK minimum retirement age (currently 55)
- Allow both residents and non-residents access to the scheme
- Either be regulated as a pension or, if the jurisdiction has no pension regulatory body, for any underlying activities (e.g. investments) where applicable
In addition, reporting requirements means that;
- There are obligations on a QROPS to report any transfer or withdrawal within 10 years
- If death occurs within 5 full tax years then the pension fund is subject to UK death taxes otherwise it is subject to the jurisdiction’s death tax rates
- The pension must be open to persons resident in the jurisdiction where it is established
- The scheme is liable for tax on the majority of benefits paid
- No limits are now imposed on the amount of income which can be withdrawn
- Funds cannot be withdrawn prior to the state set minimum age (currently 55)
- The scheme is fully regulated by the prevailing governing pension body in the jurisdiction where it was established
- where no pension regulatory body exists, the scheme is fully regulated by the prevailing governing bodies for all underlying activities (e.g. investments), where applicable, in the jurisdiction where it was established
SI 2006/206 includes latest amendment updates. These amendments have since been revoked and reinstatement of the 70/30 rule now applies to all non-EU QROPS schemes.
Tax recognition conditions
Based upon the rules of the jurisdiction where it is established a QROPS must satisfy the following;
- it has to be available to local residents
- tax relief is not available for any contributions made
- most of the benefits paid from the scheme are subject to taxation with exclusion of those in serious ill health
- 70% of a person’s retirement fund must be designated to provide an income for life
- the scheme must be registered and recognised as a pension by the relevant jurisdictional tax authorities
Outside 5 full tax years the pension will be liable for tax in the jurisdiction where it is based and the country where the policyholder is a tax resident.
A QROPS is classified as a foreign pension. This ensures that any standard withdrawals receive a 10% exemption from tax. Therefore, a £10,000 QROPS withdrawal will be treated in a similar manner as if £9,000 was withdrawn from a UK based pension scheme.
- QROPS will therefore still have to follow the laws governing it from both the jurisdiction where it is based and from HMRC
Further reporting obligations that are required of QROPS are dependent upon how long a period a policy has been held for;
For the first 10 years from the date of transfer;
- an annual report must be submitted to HMRC
- any payments or transfers made have to be notified to HMRC within 90 days
- any non-pension payment (e.g. a lump sum or pension transfer) will result in a full breakdown of all payments, both past and present, being reported
- in the event of death, tax is levied at UK death tax rates on the relevant transfer value within the first 5 full tax years
After 10 years from the date of transfer;
- any payment (whether actual or deemed) or transfer only has to be reported when the policyholder is or has been a UK resident within the past 5 full tax years
- otherwise, there are no reporting requirements
- HMRC can still issue an information notice at any time to ensure that the QROPS rules and regulations are being adhered to
A QROPS transfer is unique in that it can only be assessed once against the lifetime allowance whereas there is no limit for how many times a UK based pension may be tested.
As per the rules above it is now possible for certain QROPS to allow access to pension funds unhindered (full flexibility) if required.