Key changes to QROPS in HMRC’s draft legislation

On Tuesday 6 December, HMRC issued draft legislation in the form of the Overseas Pensions Regulations 2012. The new proposed rules and regulations are due to come into force as of 6 April 2012 and will affect many expatriate, non-domicile and UK resident individuals who are considering moving overseas. There is a consultation period up until 31 January 2012, although in the form that the legislation has been drafted, this is unlikely to be amended.

Read the full article on Malta QROPS

Do you know the difference between domicile and residency? If you’re an expat, you need to. Even without any UK assets, if you are still UK domiciled you can be taxed on any, and all, worldwide assets, which could mean an unexpected, and heavy, Inheritance Tax (IHT) bill for your beneficiaries and loved ones.

Simply, moving abroad does not mean leaving UK IHT behind. UK IHT depends not on where the retiree resides, but rather where they are domiciled – and this, for many British expats, is still the UK. The issue of UK domicile is a complex one. It has been defined by the courts as one’s ‘permanent home’ but care should be taken with this definition because it can sometimes be deceptive (for example, a person could be domiciled in a country which they have never visited!). This is because whilst domicile is a question of fact, it is also a conclusion of law which is determined by the application of a set of legal principles.

Discover more about Estate planning for Expats

There’s no doubt that Qualifying Recognised Overseas Pension Schemes (QROPS) have provided the solution to many a pension plan of those either moving, or intending to move, overseas, but experts are issuing new warnings to look beyond the immediate benefits of tax breaks.

These benefits include the potential elimination of UK tax on all pension income, up to 50% in some cases, as well as freedom from death taxes. And, in addition to the exemption from UK tax, some countries impose no tax on foreign income, so depending on the destination country, and the QROPS chosen, there could be no tax levied at all.

Discover more about QROPS and looking beyond the tax breaks

STM Group and Prudential International deliver no entry cost QROPS product
Following its recent success in resolving the Gibraltar QROPS crisis, STM has selected Prudential International’s range of funds to offer a ‘lite’ QROPS. This is the first product to offer clients a transfer to a QROPS without entry cost. When coupled with STMs commitment to no exit penalties (as with all STM QROPS schemes), this provides a truly unique offering in what is becoming a crowded market place.

STM Group believes that the Prudential funds are the perfect complement to the QROPS market. Previous experience of investing clients’ funds with Prudential has provided STM with the confidence to offer a scheme limited solely to their funds. This type of scheme will suit clients with smaller funds or those transferring from an insurance company scheme in the UK.

Very similar schemes, but with a couple of key exceptions, here’s how a QNUPS differs from a QROPS…

Starting with the initials, a QROPS is a Qualifying Recognised Overseas Pension Scheme, and a QNUPS is a Qualifying Non-UK Pension Scheme. And whilst a QROPS is always a QNUPS, a QNUPS will not always be a QROPS.

But to clarify further…

QNUPS were introduced approximately 18 months ago, with the intention of addressing a flaw in HMRC QROPS legislation which resulted in offshore UK pension holders possibly being subject to UK Inheritance Tax. An Inheritance Tax-free pension scheme was created accordingly, which included all Qualifying Recognised Overseas Pension Schemes within it, and was labelled a QNUPS.

The fundamental difference between the two schemes is that a Qualifying Recognised Overseas Pension Scheme is, as its title suggests,  a scheme ‘recognised’ by HMRC, which means it is obliged to comply with UK reporting rules, i.e. the trustees have to report any payments made from the scheme for five years following the tax year in which the member left the UK. This is not the case for QNUPS, which just has to conform with the UK laws set out for overseas pensions – essentially that it is based in a jurisdiction outside of the UK, regulated as a pension scheme there, and recognised there for the purposes of tax.

A  further exception is that with a QROPS, the holder is only able to transfer funds from an existing UK pension, whereas a QNUPS allows the transfer of property, and non-pension assets..

As such, a QNUPS is regarded as an excellent option in terms of tax mitigation, and in particular for certain individuals such as HNWIs who are approaching UK pension provision limits.

Discover more about the difference between QROPS and QROPS

In April 2006, the pension scheme known as a QROPS (Qualifying Recognised Overseas Pension Scheme) was introduced as a way of transferring a UK pension overseas, in line with EU freedom of movement legislation. An individual with a UK pension who intended to leave the UK, or who had already done so, could transfer their funds into a foreign pension with QROPS status. The main benefits of doing so would be greater tax-efficiency, reduced currency conversion risks, more flexible withdrawals, and inheritance benefits.

As a relatively new pension scheme however, Qualifying Recognised Overseas Pension Schemes have occasionally been met with caution. Not least because of the removal of some QROPS in Hong Kong and Singapore because of a lack of compliance with local rules in the respective jurisdictions. Some advisers, unsure of the exact legislative framework of a QROPS, have therefore refrained from advising their clients to transfer into one.

Malta however, now provides the certainty which does not exist in some of the other QROPS jurisdictions.

Amongst the many factors which secure Malta as a safe legislative jurisdiction which works alongside many local tax laws, are:

• The MFSA (Malta Financial Services Authority), which has worked closely with HMRC to align its legislation on domestic income tax with the UK QROPS requirements. Simply, this means that HMRC regards Maltese schemes as Qualifying Recognised Overseas Pension Schemes from the outset. Furthermore, this is continually monitored with audits, annual reporting and the publication of financial statements relating to the QROPS, to ensure the scheme continues to comply.
• Malta’s position within the EU, and the fact that any EU/EEA pension scheme is deemed a Qualifying Recognised Overseas Pension Scheme in its own right, provided that is accessible to local residents of the jurisdiction, and operates an acceptable system of personal taxation – criteria both established by HMRC prior to confirmation of compliance. HMRC are not permitted to legislate against other member states’ pension rules and regulations.
• Malta’s 57 tax treaties, which mean that it offers treaty protection to anyone transferring their pension into a Qualifying Recognised Overseas Pension Scheme there. This not only results in tax-efficient withdrawals, but also means that growth and income within investment funds may not be taxed. The advantages offered by Malta outweigh, in many instances, those offered by the tax treaty network in the UK.
• Stringent requirements imposed upon Maltese QROPS providers, including capital adequacy requirements which have resulted in only a small number of providers receiving MFSA approval, continual information requests, the necessity for audited accounts, and the compulsory publication of financial statements – none of which are required in less-regulated jurisdictions.
• Malta’s Flexible Benefit Structures, which mean that there is no stipulation on the 70% income for life rule, nor a retirement age of 55. Maltese pensions mean that retirement can be taken as early as 50; a pension commencement lump sum of 30% is available, followed by additional flexible lump sum payments which are similar to UK flexible drawdown rules; and regular withdrawal reform intimating withdrawal payments within trustee discretion.

For all of the above reasons, Malta is the flagship for STM Group, who have Qualifying Recognised Overseas Pension Schemes in Malta, Gibraltar, Guernsey and the Isle of Man, facilitating free or low-cost transfers between all jurisdictions.

STM Group are finalising their Malta QROPS to suit both existing US residents, and those who plan to move to the US. Following research on the double taxation treaty between Malta and the US, and its specific mention of pensions, and having gained US tax counsel opinion, STM believes that Malta is the most appropriate jurisdiction for residents of the US.

Specifically, under Article 18 of the US/Malta tax treaty, the STM Malta QROPS would be treated as a US qualifying pension fund. It is not subject to tax in Malta, and neither are income and gains realised by plan members’ portfolios subject to tax in the US.

The benefits include important tax advantages to members of UK domiciled pension schemes, as well as QROPS located in other jurisdictions.

For further information contact

E: david.erhardt@stmfidecs.gi 

T: +350 200 52476

or visit www.stm-qrops.com