This is because many industry executives have long been aware of HMRC’s unhappiness with the popularity of qualifying recognised overseas pension schemes, which the Revenue is said to believe are used by some for tax avoidance. And with the UK Government’s recent, publicly-stated vows to crack down on tax avoidance and tax evasion, they note, QROPS were certain to be in line for scrutiny.
“What HMRC wants is for there to be a tax,” said one non-Guernsey QROPS provider, who requested anonymity. “This is why Malta works so well, because it has so many double-taxation agreements.”
QROPS were introduced in 2006 as part of a major overhaul of Britain’s pension framework, in order to comply with an EU directive that pensions be free to move across Europe’s borders. Their popularity over the past six years is said to have come as something of a surprise to UK tax officials, who have occasionally stepped in when they felt they were being mis-used.
“HMRC have had enough,” says Geraint Davies, managing director for Montfort International, a UK-based adviser who specialises in looking after clients who relocate from the UK to Australia.
“So they are saying now, “either you play our way, by our rules, or you don’t play at all.”
End of non-resident QROPS?
As reported, HMRC has informed Guernsey officials that going forward, Guernsey pension providers will no longer be able to accept transfers of the UK pensions of non-residents, potentially ending an increasingly important business for Guernsey providers, and, according to Guernsey’s local paper, putting around 200 jobs at risk.
Guernsey officials have stressed that existing QROP schemes held on the island would not be affected.
The news was a particular blow because Guernsey lawmakers and pension industry executives had worked hard to develop a new pension scheme to accommodate a key concern raised unexpectedly by HMRC in December over so-called third-country QROPS schemes. The result of their work is a “one-size-fits-all” scheme known as 157E, which treats Guernsey residents and non-residents the same, with no Guernsey tax due on benefits paid.
Roger Berry, managing director of Guernsey QROPS specialist Concept Group, was among those who worked hardest on the new 157E scheme in the weeks and months following HMRC’s 6 Dec announcement that it planned to amend the legislation governing the way UK pensions could be transferred overseas. These changes took effect on 6 April.
Much uncertainty remains in the industry, particularly in light of the news about Guernsey’s non-resident QROP schemes, and for this reason pension providers around the world are expected to rush to their computers an iPads tomorrow, when HMRC has said it plans to post what it calls its "updated" QROPS list on its website, after suspending the existing list at midnight on 5 April.
Berry said that he fully accepts HMRC’s right to make “such regulations as they deem appropriate”, given that QROPS transfers “deal with UK tax-relieved pensions”, but he stressed that it would be wrong for HMRC to single out Guernsey for harsher treatment.
“Guernsey created 157E pensions primarily to meet changing HMRC regulations on QROPS announced last year, although it is worth noting that [157E] has been welcomed by Guernsey residents and is increasingly being used by locals,” Berry said.
“It does seem that HMRC are not satisfied with 157E, and do not wish to provide QROPS status, thus ending any further transfers.
“If that is the case for all jurisdictions involved in this business in an equitable way such as Malta or New Zealand, then so be it.
“[But] it would be of real concern if Guernsey was being singled out and suffers discrimination.”
Not the end
That said, Berry does not see HMRC’s announcement about Guernsey third-country QROPS setback as spelling the end for Guernsey’s pensions providers, as some rivals in other jurisdictions might expect him to. Instead, he suggests that if necessary, Guernsey providers could “create bridgeheads in other jurisdictions”.
This is what happened after HMRC expressed unhappiness with Gibraltar’s QROPS regime in 2009, and a number of its pension providers quickly set up operations in Malta, which was first recognised by HMRC as a jurisdiction to which UK pensions could be transferred in November of that year.
Some pension industry sources outside of Guernsey said they thought HMRC may not have been amused by, as one put it, the jurisdiction’s “rushing a piece of legislation through to get around the new rules before they were published”. (“I think it is sad for some Guernsey providers who have been very professional and above board, but [this] was always going to annoy HMRC”).
This source and others pointed to a clause in HMRC’s most recent QROPS guidance, No. 2.69, which states that any country or territory which "makes legislation or otherwise creates or uses a pension scheme to provide tax advantages that are not intended to be available under the QROPS rules" would find such schemes "excluded from being QROPS".
HMRC concern
Typical of those who were not surprised by the news about Guernsey’s third-country pensions was Matthew Nash, technical and marketing director for Bristol, England-based Cradle Overseas Pensions, which advises clients considering moving their UK pensions overseas.
“We can advise on QROPS anywhere, but for the last 18 months we’ve been advising all our clients to go with EU schemes, where double tax schemes are in place, with the result that all but one have gone with Malta,” Nash said.
“We’ve only had one client go to Guernsey in the last 18 months, and that was against our advice.
“It’s for a few reasons, but in the context of [the recent news from Guernsey], for the last 18 months we’ve seen HMRC has been increasingly concerned about schemes paying out gross, without any tax being paid. So we’ve used Malta, to take advantage of its 59 double-tax treaties.”
