Earlier this month as part of the UK Government’s Autumn Statement, HM Revenue & Customs published draft legislation aimed at preventing abuse of QROPS.
In a statement released at the time, HMRC said: “The Government has found that QROPS are being marketed extensively as a way of paying amounts or enabling the payment of amounts that are not allowed under UK rules (in particular 100% lump sums) once the UK tax rules no longer apply.
“This is contrary to the policy rationale for allowing transfers of UK tax-relieved pension savings to be made free of UK tax to QROPS.”
There is no suggestion by either HMRC or STEP that the practice of taking 100% lump sum payments from a pension is prevalent in Guernsey, rather New Zealand is the targeted jurisdiction in this respect. However, STEP points out that a rule which requires pensioners who are not resident in the same jurisdiction as their QROPS to be taxed at the same rate as residents of that jurisdiction, seems to be aimed “squarely at Guernsey”.
STEP said: “This clause appears to be aimed squarely at Guernsey, and to some extent the Isle of Man, whose financial services industries market QROPS products to non-residents on the basis that their pension payments are made free of tax.”
STEP added that the new Finance Bill means these jurisdictions will either have to tax QROPS pension payments to non-residents, or stop taxing their own residents’ pensions, with the only exception being if the pension recipient is living in a jurisdiction with a double taxation treaty with the QROPS provider’s jurisdiction.
However, STEP also points out that, while the official consultation period on the proposed legislation closes on 31 January 2012, Guernsey has until 6 April to “persuade the UK government not to impose the new legislation”.