The repeal of the Foreign Investment Fund (FIF) rules, which had been expected, is seen as benefittng offshore retirement funds, such as Qualifying Recognised Overseas Pension Schemes (QROPS), by reducing onerous reporting duties and tax burdens that until now have been a headache for UK expatriates who have moved to Australia for good.
However, QROPS experts say, it makes advising Britons and returning Australians who are considering moving their pensions to Australia more tricky, because major disincentives to moving pensions back to the UK remain.
“It is a complete and utter minefield” for advisers now, said Geraint Davies, managing director of Surrey, England-based Montfort International, a QROPS provider.
According to Davies, even though the abolition of the FIF regime is essentially a positive development for Australia-resident investors, IFAs must ensure that they are up to speed not only on the new regulations and how they could affect an Australian QROPs, but also on their individual clients’ plans, and their potential to change their minds at some point and wish to return to Britain.
As reported, the FIF regime, which dates back to the late 1980s and was a wide-ranging anti-avoidance regime aimed at preventing Australian residents from deferring tax through the use of overseas investments, is being replaced by a more narrowly-defined anti-avoidance rule.
“If an adviser does not understand how the regime works, and its consequences, he could end up putting his client’s QROPs in the wrong jurisdiction, and could have problems all over the place if that client later comes back and says he was given the wrong advice,” Davies adds.
“Let’s say you advised someone to move their pension to Australia, and failed to tell them that there is no reverse gear, that they can’t move it back to the UK; or that you recommended that they put their money into a fund that is going to cause tax problems. Would it be reasonable to have expected that you would have understood and factored in the Australian rules [when giving this advice]? – Yes.
“It just shows how complicated this really is.”
QROPS expert Rex Cowley, who is head of marketing at Close International, said the change to the Australian tax regime was “a reminder of the fluidity of tax systems around the world” and how such changes may affect individuals.
“For anybody looking to hold a QROPS, they need to remember that the implications on tax are typically three-dimensional,” he added. “In other words, they need to be cognisant of the implication from a UK perspective, the jurisdiction in which the QROPS is domiciled and the tax environment in their country of residence.
“This again shows the complexity of International pension planning and anyone looking to transfer their UK pension to a QROPS should only do so under advice."