QROPS face tougher requirements
A number of Qualifying Recognised Overseas Pension Schemes (QROPS) may lose their status following the expected legislative changes on 6th April 2012.
However, these QROPS will not be liable for member or scheme charges as long as they continue to meet their obligations to HM Revenue & Customs (HMRC), according to David Higgins, technical expert director for Fairbairn.
The proposed new rules, which HMRC has just finished consulting on, are designed to provide a more robust regime in order to limit offshore tax avoidance.
Amongst the changes are a 30 percent cap on tax-free drawdowns, with the implication that this applies to the fund after further contributions and growth, as well as a doubling of the current reporting period of five years.
Furthermore, there will be tighter registration requirements for providers and investors will need to pay the same income tax on benefits as other taxpayers in the country where the scheme is based.
Although the latter of these will simply mean that individuals can offset the tax paid in the scheme’s country against the tax due where they live, this becomes a problem for taxpayers who reside in a jurisdiction with extremely low tax rates, as there will not be significant liabilities to balance the withholding tax paid. Consequently, countries with low tax regimes will become more attractive to QROPS providers.
Any QROPS in countries which fail to apply these new rules will no longer qualify.
