On Wednesday, the UK Treasury announced that income from foreign pensions, the bulk of which consist of recognised overseas pension schemes (Rops), will be treated the same as income from UK pensions.
The reforms, published in a document following the UK chancellor Philip Hammond’s Autumn Statement, will also include changes to HM Revenue & Custom’s (HMRC) “eligibility criteria” for Rops to qualify as overseas pensions schemes.
In addition, the government also unveiled plans to extend from five to 10 years the taxing rights over recently emigrated non-UK residents’ foreign lump sum payments from funds that have had UK tax relief and align the tax treatment of funds transferred between registered pension schemes.
‘Increasing uncertainty’
Jason Porter, director of European IFA firm Blevins Franks, called the changes to foreign pensions “unhelpful”.
He argued that the measures will make self-invested personal pension schemes (Sipps) more attractive to the 1.2 million British expats living permanently across the EU than using Rops.
“In times of increased uncertainty for expats, the constant tinkering in the rules on foreign pensions such as Rops, which now appear to be inferior to using a Sipp, is not only unhelpful for the advisory community but does not allow an individual to plan for his retirement in a settled environment of pension tax legislation,” said Porter, whose firm advises expats in Spain, France, Portugal, Cyprus and Malta.
Green welcomes reforms
Surprisingly, Nigel Green, chief executive of expat financial advisory firm deVere Group, welcomed the proposals to bring the tax treatment of Rops in line with the UK’s domestic pension tax regime.
Currently, 90% of income from a foreign pension is subject to income tax, as opposed to 100% in a UK pension scheme, hence the changes will look to raise the threshold to 100%, he explained.
“I welcome the government’s plans as they will help ensure that Rops are not misused and/or mis-sold.
“It further highlights that Rops will still keep the same standards or equivalent as UK pensions, that they are fully part of the retirement planning ‘establishment’, and the deployment of more and more of government resources demonstrates that the market is well governed,” said Green.
He also championed the suggested tightening of eligibility criteria, predicting it will prevent jurisdictions that are failing to meet the stringent requirements demanded by HMRC from “bending the rules”
“Other jurisdictions, including Malta, the Isle of Man and Gibraltar, which are fully compliant with HMRC rules and standards, will benefit from this,” said Green.
