Last year’s Draft Finance Bill, by comparison, caught the QROPS industry by surprise with an unexpected raft of new regulations that, in the HM Revenue & Custom’s words at the time, had been designed to ensure that pension savings were “used to provide an income in retirement, as intended when the [QROPS] regime was introduced in 2006”.
Among these regulations was what became known as “Condition 4”, which stated that members of QROP schemes would not be permitted to enjoy a different tax treatment on their pension payments than that available to pensioners resident in the country in which the scheme was domiciled.
This year, however, the Overview of Legislation in Draft, as the Draft Finance Bill is formally known, appears to do little more than add a few new reporting requirements, including an obligation for scheme administrators that “every five years…[they] notify HMRC that [their] scheme continues to meet the conditions to be a QROPS”.
Failure to comply with this new rule, which is to be introduced in Finance Bill 2013, could lead to the scheme in question being excluded from being a QROPS, today’s draft legislation notes.
Secondary legislation is also due to be introduced, it goes on to say, that will require scheme managers to report to the Revenue any payments made out of transfers of pension savings they have accepted from UK pension schemes, “even when that scheme has ceased to be a QROPS since accepting the transfer”.
QROPS industry experts said these new reporting requirements reflected HMRC’s recently-renewed determination to ensure that the overseas schemes are used to provide pensions for people in retirement rather than, as some providers are said to have attempted to use them for, as a means of avoiding tax on a sum that, after five years, could be extracted from the pension structure in the form of cash.
“HMRC seem to be extending the onus on non-UK pension schemes that are QROPS to report and keep records in line with comparable UK pension schemes,” said John Batty, head of pensions at Momentum, the international QROPS provider.
Although there might be providers and advisers who will not welcome the added reporting obligations, Batty believes the industry should actually embrace HMRC’s apparent willingness to become more involved in QROPS oversight, as, he believes, investors will feel better about the schemes if they feel they are being properly regulated.
Response to ordinary residence reforms
The legislation outlined today implements a number of tax policies first unveiled in the Budget back in March, and in the Autumn Statement last week, and which will be included in Finance Bill 2013.
A technical consultation period on the various provisions remains open until 6 February 2013, the Treasury said in a statement.
Included with today’s draft tax legislation are responses to consultations that have taken place over the summer, including the Government’s planned reforms of ordinary residence, as well as details of a change to the inheritance tax treatment of individuals who are domiciled outside the UK and who have a UK-domiciled spouse or civil partner (see UK to change ‘discriminatory’ spousal IHT rule).
Experts say this change is long overdue, but that many problems remain for mixed-domicile marriages and civil partnerships.
To view the Draft Finance Bill, click here.
