Contrary to industry expectations, however, it is not seeking to emulate a one-size-fits-all, no-local-tax-due-on-benefits-paid QROPS format recently unveiled in Guernsey, and instead is looking at a “low tax” scheme that would work for Gibraltar residents and non-residents alike.
In its favour as a QROPS jurisdicition, Gibraltar is, unusually for a British overseas territory, considered a member of the EU for most things, including financial services, unlike Guernsey, Jersey and the Isle of Man. It is also said to have a more flexible, and thus attractive, regime for QROPS administrators than some other popular QROPS destinations.
Gilbert Licudi, Gibraltar’s new minister for financial services, told International Adviser that he has “draft legislation” in hand for a new QROPS regime that he is currently in the process of taking industry and legal advice on.
This legislation is being designed, he said, with the intention of addressing the concerns of HM Revenue & Customs that effectively caused Gibraltar to get out of the QROPS business in 2009, while at the same time ensuring “that what is done in Gibraltar is competitive [with respect to] other jurisdictions”.
A meeting between government officials and industry representatives took place last week, Licudi said, with Gibraltar pension and trust administrators expected to meet among themselves soon to discuss the matter.
“I’m taking advice on the drafting and the legal side of the [proposed] legislation, with a view to having it introduced very soon in Gibraltar,” Licudi, a former partner in the Gib-based Hassans law firm, said.
Once the final form of the legislation has been agreed upon, Licudi said, it would take “about two months” for it to become law.
“We are very keen on the idea that this is something that needs to be done, but we need to do it in a way that safeguards the position of Gibraltar and at the same time ensures that the QROPS to which funds are transferred in Gibraltar are accepted as valid.”
Two main concerns
Of particular concern, Licudi said, were issues having to do with commutation – the so-called lump sum pensioners often opt to take from their pension pot when they begin drawing benefits – and how pension benefits are to be taxed.
HMRC insists that 70% of the funds contained in a QROPS must be retained by the trustee at commencement, in order to provide the individual in question’s pension, and is said to take a dim view of those providers who seek to boost their business by promising more than a 30% pension commencement lump sum.
But it is the plans for how Gibraltar will look to tax QROPS benefits that is of greatest interest to most QROPS industry observers, in part because it was the fact that Gibraltar taxes residents over the age of 60 at 0% – which, it insists, is not the same thing as “no tax” – that caused HMRC to express concerns over the Gibraltar QROPS regime in 2009, and subsequently led Gibraltar pension administrators to suspend all pension transfers to the jurisdiction.
This situation remained largely unchanged until last April, when STM Fidecs, part of the Gibraltar-based, AIM-listed STM Group, unveiled what it said was a specially-designed QROPS scheme that had been approved by both Gibraltar’s income tax commissioner and HMRC.
STM has never officially said how it managed to satisfy HMRC’s concerns, but it is thought that it taxes QROPS benefits at 0% in a way similar to that now under consideration in Guernsey.
For this reason, following HMRC’s announcement last December that it is to change the rules governing the way QROPS operate – with a new requirement that to be recognised as a QROPS an overseas pension scheme must not permit non-residents to enjoy any tax exemptions to benefits paid that are not available to residents of the jurisdiction in which the QROPS is administered – it was thought Gibraltar would formally pursue this route as well. But Licudi says this is not the case.
“The indications that we’ve had are that HMRC would not look favourably on that [a 0% tax rate on pension benefit payments of individuals holding Gibraltar QROPS, whether resident there or not],” Licudi said.
“If we could do that, we would love to, that would be very similar to what the regime is for Gibraltar pensioners now.
“We haven’t taken a final decision, but we are talking about a low tax rate being introduced.” Licudi declined to say how low the rate would be, but one Gibraltar source suggested that it is likely to be in the range of 2%.
Industry keen but guarded
Pension administrators in Gibraltar say they would welcome anything that would bring QROPS back to the Rock, but are reluctant to celebrate just yet, given how little progress has been made in the more than two years since pension transfers to Gib were suspended.
Still, they admit that it is possible that having a new chief minister in Convent Place – Gibraltar’s equivalent of Downing Street – might make a difference.
As reported, following an election in December, Gibraltar’s government changed hands for the first time in 15 years, with the election of a 39-year-old member of Gibraltar’s Socialist Labour Party, Fabian Picardo, as chief minister.
David Erhardt, for example, group pensions director at STM, said he has seen a “surge in interest” from people interested in transferring to STM’s new Gibraltar scheme, which he attributed in part to its domicile.
