It should be noted that these are only guidance notes and not full legislation and may be subject to change before they are officially released, possibly sometime next week around the time of the UK’s annual Budget.
However, the notes do appear to clarify some points.
The oft-discussed “Primary Condition 4” for which the Isle of Man and Guernsey are likely to introduce new pension legislation to cater for, does not now look like it will be passed into law under this guise. Instead, these same requirements are now to be found under the “benefits exemption tests”.
The relevant section of the guidance note states: “Where an exemption from tax in respect of benefits paid from the overseas pension scheme is available to members of the scheme who are not resident in the country or territory in which the scheme is established, the exemption must,
(a) also be available to members of the scheme who are resident in the country or territory; and
(b) apply regardless of whether the member was resident in the country or territory
(i) when the member joined the scheme; or
(ii) for any period of time when they were member of the scheme.”
The change is noted by Mike Lightfoot, retirement plans & portfolio trust director at Kleinwort Benson, who said: “The exact intention of this change is unclear but will likely raise issues in relation to QNUPS and inheritance tax protection for schemes that might be forced to de-list as QROPS.
“From Guernsey’s perspective it is important to note that the key text of the ‘benefit exemption test’ was originally included within the 20 December HMRC draft guidance release in relation to Condition 4. So those jurisdictions like Guernsey that sought tax counsels opinion before changing the way their tax approval systems operate, did so primarily by reference to that criteria anyway. Therefore members with benefits inside Guernsey schemes appear to have little to fear on the 6 April 2012 if no further changes occur.”
In the Isle of Man, schemes which fall under the 50c pension legislation will not comply after 5 April, so legislative changes will be required.
However Gary Boal, managing director of Boal & Co, which has its Trinity QROPS established under the 50c rules, is confident that the IoM will be able to meet the new requirements.
“The Isle of Man will keep its position open until next week, but we are confident those schemes which need to change will comply with the new regime,” said Boal.
“I am not guaranteeing that it will be seamless, but the fixes needed are relatively small and are attainable and, as a provider, I feel we have the support of the authorities.”
The guidance notes also confirm that there will be new reporting requirements for all QROPS after 5 April 2012. The guidance states that the “revised reporting requirements are applicable to any payments made from a QROPS after 5 April 2012”.
It also states: “The scheme manager must notify HMRC when they make a payment, or are treated under certain provisions as making a payment, in respect of a relevant member. However, the scheme manager does not have to notify HMRC if:
- the payment is made 10 years after the day of the transfer that created the relevant transfer fund and
- the relevant member is a person to whom the member payment provisions do not apply under paragraph 2 of Schedule 34
The member payment provisions do not apply unless:
- the member is resident in the UK when the payment is made (or treated as made), or
- although not resident at that time, has been resident in the UK earlier in the tax year the payment is made or in any of the 5 tax years immediately preceding that tax year.”
On New Zealand, which has also been subject to speculation, the rules have “come as expected” according to IFA Stephen Ward, managing director of Premier Pension Solutions.
The guidance, as they appear in the leaked document, suggest an end to 100% commutation, something which Ward says would have ended due to legislation being passed by the New Zealand government anyway.
“Schemes have been set up in New Zealand designed to attract long-term business, and investment funds within such schemes can give tax-free investment growth,” said Ward.
“New Zealand schemes meet the benefit exemption test without having to resort to legislative changes.
“From the ‘leaked’ frequently asked questions document we see HMRC’s interpretation of the ‘70% of the fund for the purpose of providing an income for life’ rule. This allows flexibility for providers – one provider (Endeavour) will allow long-term non-UK residents to take income withdrawals at levels more than double that available from UK schemes.”
Paul Evans, from Brooklands Pensions which has a New Zealand based QROPS added: “Based on the accidently released HMRC documentation, it is clear that New Zealand Superannuation Schemes are very much open as QROPS post 6 April 2012. We are currently adopting an Amending Deed to fulfil the additional HMRC criteria ensuring our New Zealand QROPS continues as a QROPS post April 5.”
Meanwhile, Bethell Codrington of TMF International Pensions, which has a Malta-based QROPS, the Melita International Pension Scheme, said, while the guidance published this week “should not be taken as gospel” he is fairly confident Maltese schemes will comply.
“No one can say categorically that Malta, or any other jurisdiction, will be able to comply after 5 April until we see the final legislation, however, with Malta being part of the European Union, it is hard to envisage there being any substantial problems.”
To read the leaked guidance please click here and for the FAQs please click here.
What do you think? Use the comment box below to give us your thoughts on the guidance notes.
