QROPS are mandated to follow HMRC rules & regulations. Failure to do so may result in the pension being delisted and losing any associated tax breaks.

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;

There are two core conditions that a non UK pension scheme has to satisfy in order to be HMRC compliant;
 

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
For a QROPS to be qualified it has to meet HMRC’s definition of a pension under statutory instrument 2006 No. 206 (SI 2006/206) which has the following criteria;
 

  • 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  • No limits are now imposed on the amount of income which can be withdrawn
  • Funds cannot be withdrawn prior to the state set minimum age (currently 55)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

or
 

  • 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 These amendments have since been revoked and reinstatement of the 70/30 rule now applies to all non-EU QROPS schemes.

To enable QROPS to legally avoid being liable for inheritance tax they have to meet certain tax recognition conditions. Full HMRC details are available in statutory instrument 2010 No. 51 (SI 2010/51)
 

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

and either;
 

  • 70% of a person’s retirement fund must be designated to provide an income for life

or
 

  • the scheme must be registered and recognised as a pension by the relevant jurisdictional tax authorities
70% of a person’s retirement fund must be used to provide an income for life. This therefore allows for up to 30% of a pension fund to be withdrawn as a (tax free) pension commencement lump sum.
 
This rule does not apply to all QROPS.
This rule applies to all QROPS from the 6th of April 2015. QROPS must now comply with the minimum retirement age as set out under the general UK regulations.
Should a withdrawal be made either whilst the pension holder is a UK tax resident or within 5 full tax years of the person no longer being a UK tax resident then it will be liable to tax by HMRC. To clarify with an example, a pension withdrawal in March 2015 will be subject to tax if the pensioner has been a UK tax resident at any point from the 6th of April 2009 onwards i.e. almost 6 years.
 
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.
A QROPS manager is under the obligation to notify HMRC within 30 days of their scheme ceasing to meet the qualification criteria set forth under these rules.
 

  • 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

in the event of a regular withdrawal only the first payment has to be reported

  • 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
UK pensions are subject to an additional tax if they exceed a set limit when they are measured. This measurement usually happens whenever one of eleven set events occurs.
 
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.
Rules governing Qualifying Recognised Overseas Pension Schemes have been known to take time for clarification following the introduction of wider pension reforms as demonstrated after the 2014 UK budget. Whereas it was known almost immediately what the impact for UK pensions would be, even though a lot of the changes would only come into effect from the 6th of April 2015, it took the Autumn Statement (3rd December 2014) and further draft legislation amendments until it was deemed only possible for QROPS to benefit from the same full flexibility option as UK pensions had been granted months earlier.
 
As per the rules above it is now possible for certain QROPS to allow access to pension funds unhindered (full flexibility) if required.

QROPS rules

QROPS Rules - Retirement is not allowed before 55, no inheritance tax, death tax or income withdrawal limit so you have full flexibility

 

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QROPS Rules and Regulations written by Don MacRitchie average rating 4.6/5 - 22 user ratings