Under new guidelines from HM Revenue & Customs (HMRC), retirement savers transferring cash from the UK to a Qualifying Recognised Overseas Pension Scheme (QROPS) need to carry out due diligence on the receiving pension.
The rules defining a QROPS are complicated and almost impenetrable to professional IFAs, so how do you know whether your offshore pension meets the rules?
Getting the answer wrong is expensive. HMRC treats a pension transfer to a scheme that is not a QROPS as an ‘unauthorised pension withdrawal’ and sets penalties starting at 55% of the transferred fund.
Identifying a QROPS
So here’s a step-by-step guide to identifying a QROPS.
- The scheme must be an overseas pension
This seems simple enough but means the pension must be:
- Based outside the UK
- Meets the regulations requirements test, which basically means the place where the QROPS is based has an official financial regulator
- Meets the tax recognition test. To do this, the pension must be open to residents in the place where it is based and the local tax authority must tax personal income
- The pension must pass the benefits tax relief test, providing its not a public service pension or set up by an international organisation.
The test calls for parity between tax relief on pension payments for resident and non-resident taxpayers in the country where the QROPS is based.
- The QROPS must pass the pension age test, providing its not a public service pension or set up by an international organisation.
The test bars pension payments to anyone under the UK statutory minimum retirement age, which is currently 55 years old, except in exceptional circumstances, such as ill-health.
- The QROPS must be based in the European Economic Area (EEA) or a country other than New Zealand that has a double taxation agreement with the UK, unless the New Zealand pension is a Kiwisaver scheme.
- If the pension is based outside the EEA, the scheme must ring fence 70% of funds transferred in to pay the retirement saver a pension for life
- If the pension is one of certain Guernsey schemes, the QROPS must be closed to Guernsey non-residents.