Around 90 people attended the meeting, which was organised by AO Hall, a law firm which counts pensions among its areas of expertise.
Much of the meeting was taken up with discussions over how Guernsey might best address an element in the HMRC proposals known as "Condition 4" of the form that QROPS providers use to register their Qualifying Recognised Overseas Pension Schemes.
This new condition would require all jurisdictions in which QROPS are administered to tax the pensions of local residents at the same rate that QROPS beneficiaries are taxed at.
In Guernsey, residents pay a 20% tax on their pension income, after receiving their tax-free lump sum when they begin taking their pensions, while non-residents with QROPS administered there do not pay tax in Guernsey, but in the jurisdiction in which they live.
As reported on Monday, the association representing pension providers in Guernsey is understood to be working with officials there on as-yet-undisclosed possible changes to the island’s tax regulations with respect to pensions, in an effort to ensure the survival of its QROPS industry.
Some observers, including rival law firm Carey Olsen, have suggested the island has just two options – basically, tax everyone, or tax no one – yesterday’s discussion focussed on at least five.
However, as AO Hall group partner Paul Buckle later observed, some of these “may in practice be unworkable, or else run the risk of antagonising HMRC, or causing HMRC to question whether what Guernsey intends is within the spirit of Condition 4 or not”.
“Neither [being unworkable nor antagonising HMRC] would be a workable nor satisfactory outcome so far as Guernsey is concerned, as we are very much of the view that any solution must be acceptable not just to Guernsey but also to HMRC,” Buckle added. “It is a difficult balancing act.”
Five possible options, according to Buckle:
- Removal of the section 40(ee)(2) exemption from income tax for non-residents, with reliance then being placed on the extra- statutory concession in favour of non resident beneficiaries of Guernsey trusts. Likelihood of being adopted: “doubtful”.
- Removal of the exemption, so as to tax Guernsey and non-Guernsey residents at the same rates, or at different rates with a reduced (or even zero) rate for non residents. Likelihood: “possible”.
- Maintain the exemption for both resident and non resident pension scheme members, so that neither pays tax on Guernsey pensions. Likelihood: “possible”.
- Removal of the exemption from the legislation and incorporating it in double tax agreements. Likelihood: “theoretically possible but wholly impractical”.
- Removal of the exemption and the right of Guernsey residents to claim tax relief on contributions to QROPS schemes, but not to non-QROPS schemes. Likelihood: “Possible”.
As reported, the Guernsey Association of Pension Providers (GAPP) has said it is “continuing to work closely” with Guernsey’s Income Tax Office on a “solution” to potential problems thrown up by HMRC’s surprise announcement last month of a package of proposed changes to the legislation governing QROPS.
“Unless the proposed changes are withdrawn [by the UK government], or amendments made to Guernsey’s own tax regime for pension schemes, there would be serious implications for individuals who plan to move from the UK and wish to transfer their UK pensions to Guernsey,” GAPP said in a statement posted on its website.
