In a statement issued yesterday, Guernsey’s Treasury & Resources office said that HMRC’s revised list of approved QROPS – to be published on Thursday – “will only include a Guernsey scheme if the HMRC is satisfied that the scheme is ‘residents-only’”.
“This will not affect past transfers into schemes which were at the time QROPS, or the UK taxation of assets in such a scheme,” the statement added.
“HMRC [will] provide technical detail on occupational schemes at a later date.”
The statement also noted that HMRC had indicated its intentions to “seek to revise its regulations further in order to disqualify 157E schemes from QROPS listings”.
157E is the name given to a new “one-size-fits-all” pensions regime passed weeks ago by Guernsey legislators in an effort to accommodate a key concern raised unexpectedly by HMRC in December over existing third-country QROPS schemes. The 157E scheme treats Guernsey residents and non-residents the same, with no Guernsey tax due on benefits paid.
In the statement, Treasury and Resources Minister Deputy Charles Parkinson said that although Guernsey was “naturally disappointed” by HMRC’s action, ““we are relieved that pension schemes which have already been established in Guernsey will be largely unaffected, except in respect of any further transfers of assets from UK pension funds into those schemes.
“We are working to ensure that future transfers into schemes established for the benefit of Guernsey residents will not be affected by the change in the UK’s stance.”
Guernsey officials declined to comment beyond what was in their statement, and referred additional questions to the Revenue.
A spokesman for HMRC did not address the Guernsey case specifically, but pointed out that QROPS were “intended to be the equivalent of UK registered pension schemes, the normal tax-favoured pension schemes established in other countries”, and “never intended” to provide tax advantages to those transferring their UK pension savings.
“From 6 April 2012, one of the conditions a pension scheme must meet to be a QROPS is that if there is a tax relief for non-residents on benefits paid from a pension scheme then the same, or substantially the same, tax relief must be available to residents. This is known as the benefits tax relief test,” he added.
“A pension scheme that can have only residents as members will meet the benefits tax relief test. Pension schemes will need to meet the new conditions to be a QROPS.
“If a pension scheme that was a QROPS on 5 April 2012 no longer meets the conditions to be a QROPS, members of the pension scheme will be able to remain as members and receive a pension paid from the sums transferred without incurring member payment charges.”
Implications unclear
It was not immediately clear how, if at all, the setback for Guernsey’s QROPS industry may similarly affect other QROPS jurisdictions, such as New Zealand, that have large third-country QROPS industries.
QROPS providers in Guernsey said this morning that they were confused by the news, and were trying to find out what is to become of the industry that has grown to become a major source of revenue and jobs on the island, and has accounted for at least 10% of all QROPS transfers since qualifying recognised overseas pension schemes were introduced in 2006.
Some QROPS experts said they thought HMRC was responding to the fact that Guernsey had created new pension legislation specifically designed to accommodate UK pensions transferred to the island on behalf of individuals who had no intention of becoming Guernsey residents. They pointed to Clause 2.69 of Finance Bill 2013, which was published as part of the 2012 Budget and which stated that, any country or territory with “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”.
Adding to the uncertainty, HMRC last week quietly removed its list of QROPS providers from its website, replacing it with a statement which notes that the list “will return in an updated form by 12 April”.
Few Guernsey QROPS providers were willing to talk on the record this morning, as the news broke, as they said they did not have all the facts before them. However, one told International Adviser: “The upshot seems to be that 157E [a new pensions scheme Guernsey introduced in an effort to accommodate HMRC’s stated concerns over QROPS] complies, [but] HMRC don’t like the fact that it complies, so are now taking an alternative approach.”
He added: “In a way it’s a back-handed compliment — it proves we were 100% technically and legally correct with 157E.”
The statement issued by Guernsey’s Treasury & Resources department:
9 April 2012
QROPS UPDATE: GUERNSEY’S INCOME TAX OFFICE WORKING TO PROTECT EXISTING GUERNSEY QROPS SCHEMES AS THE UK’S REGULATORY REGIME CHANGES
· HMRC’s list of approved QROPS, to be published next on 12 April 2012, will only include a Guernsey scheme if the HMRC is satisfied that the scheme is ‘residents-only’
· This will not affect past transfers into schemes which were at the time QROPS, or the UK taxation of assets in such a scheme
· HMRC to provide technical detail on occupational schemes at a later date
· HMRC indicates that it will seek to revise its regulations further in order to disqualify 157E schemes from QROPS listings
On 6 December 2011 HM Revenue and Customs (HMRC) released a consultation document relating to draft legislation entitled The Overseas Pension Schemes (Miscellaneous Amendments) Regulations 2012 (the ‘New Proposed Regulations’). The consultation set out proposed changes to the QROPS regime which would revise the conditions that a scheme has to meet to qualify as a QROPS, and it closed on 31 January 2012.
Since the date of the publication of the consultation and the draft regulations, Guernsey’s Income Tax Office (ITO) has been in discussion with HMRC in order to try to find a way forward that would balance Guernsey’s pensions industry’s interests in relation to QROPS with the UK’s stated policy objectives. However the HMRC has now indicated that it will seek to change its UK regulations again in order to prevent 157E schemes being recognised as QROPS, and the ITO is actively seeking further clarity from the HMRC on its position in that respect.
HMRC is also revising the QROPS list published on its website to reflect the changes to the QROPS regime. An updated version of the list will next be published on 12 April. Following a series of technical discussions, HMRC has confirmed to the ITO that the HMRC’s revised list of approved QROPS will include only those Guernsey schemes that can satisfy the HMRC that they are ‘residents-only’. This change will not affect past transfers into schemes which were at the time QROPS, or the UK taxation of assets in such a scheme.
Therefore the ITO is offering to assist local pensions schemes by being a conduit for clarifying to HMRC which Guernsey schemes can admit only Guernsey residents, and is advising providers to contact Guernsey’s Director of Income Tax Rob Gray.
Treasury and Resources Minister Deputy Charles Parkinson commented:
“I would encourage relevant ‘residents-only’ schemes to contact the ITO as soon as possible in order to stand the best chance of securing confirmation of their status on the HMRC’s revised list. However, any that are received later will appear on the next update, as the list is published approximately every two weeks.
“We have asked the HMRC to clarify the process with regard to a smooth transition to the UK’s new regulatory regime for s150 occupational schemes, and they have said they will come back to us as soon as possible. As soon as they do the ITO will inform GAPP and individual providers.
“We have also asked the HMRC to come back to us with clear and detailed information with regards to their position on 157E schemes. When we have that we will communicate it with our pensions industry immediately.
“While we are naturally disappointed that the UK has taken this action, we are relieved that pension schemes which have already been established in Guernsey will be largely unaffected, except in respect of any further transfers of assets from UK pension funds into those schemes. We are working to ensure that future transfers into schemes established for the benefit of Guernsey residents will not be affected by the change in the UK’s stance.”
Director of the Income Tax Office Rob Gray commented:
“Given the short time frame allowed by the HMRC, urgent action by schemes that cannot admit non-residents is required if they wish to remain as QROPS, and providers with questions in that respect should contact the ITO as soon as possible.”
