At the end of December last year, HMRC issued draft legislation to allow QROPS full flexibility in drawing pension benefits from 6 April 2015, removing the previous requirement for 70% of the funds in a scheme to provide an income for life. This was subject to a four week consultation.
Following this, in January, the Malta Financial Services Authority issued new financial regulations including an amendment which means that all Maltese QROPS are now subject to UK HMRC rules rather than local legislation.
This made it the first jurisdiction to alter its local legislation to allow 100% lump sum withdrawals out of QROPS.
A change to Gibraltar’s Income Tax Act in 2014 allows the commissioner of income tax in Gibraltar to vary the commutation percentage of 30% on QROPS with “regard to the legislation of the jurisdiction from where the funds or benefits entitlement originate”.
Michael Ashton, senior finance centre executive at Gibraltar Finance, said the amendment to the British Overseas Territory’s tax act was made in order to allow the jurisdiction to “adapt quickly” to any changes to UK legislation.
But he added the Government of Gibraltar has considered HMRC’s latest proposals and will wait for the conclusion of the consultation before making any changes.
“We would expect to have discussions with the relevant UK authorities before announcing any proposed changes to QROPS in Gibraltar as we want to maintain our position as a jurisdiction of choice for QROPS,” he said.
Income for life
However, John Batty, director at Momentum Pensions, said the amendment does not facilitate the complete alignment of Gibraltar’s QROPS legislation with the UK, as it does not remove the jurisdiction’s requirement of an income for life, a legislative nuance that would require a further change to complete.
“The amendment only applies to the lump sum you can withdraw. Gibraltar still requires an income for life but now the UK and Malta do not,” he added.
He said this variation between jurisdictions could carry some potential ramifications, as Gibraltar does not allow QROPS schemes to be transferred to jurisdictions with legislation vastly different from its own, although where there is no Double Tax Treaty (DTA) in place, Gibraltar would still remain a key jurisdiction.
“The choice of QROPS jurisdiction used to be a tax play dependent on DTAs. From April, it will be a tax and flexibility play. Ultimately, it could become a transferability play,” he added.
He said the variation could also become an issue for providers who are not based in each of the main QROPS jurisdictions, as sudden changes in legislation may leave their jurisdiction unsuitable.
“The ability to switch across all four jurisdictions is essential,” he added.
Mark Sanderson, chief operating officer at Brooklands Pensions, said that because Gibraltar’s obligation for an income for life is rooted in HMRC’s initial QROPS legislation, it would now be “logical” for the jurisdiction to follow the Revenue’s lead and remove the requirement.
“However, this should not be done in haste,” he added. “Legislative changes cannot be rooted in the best interests of QROPS holders over local residents. The Government must consider this.”
Gary Boal, managing director at Boal & Co, said the amendment means Gibraltar is “very well positioned” to react to HMRC’s changes.