The government proposes to change the operation of QROPS with effect from April 2012 - http://www.hmrc.gov.uk/tiin/tiin650.pdf
Draft legislation is open for consultation until January 31, 2012, with the intention of implementing a tougher QROPS regime with fewer loopholes from April 6, 2012
Extended reporting period
Currently: The HMRCC reporting period expires after 5 years
Change: To double this reporting period to 10 years
Questions:
- Is this to be retrospective from the date of implementation - April 2012 ?
Acceptance of terms
Change: Every QROPS investor will in future be expected to sign a form acknowledging they understand the tax implications of transferring a UK pension fund in to a QROPS
Questions:
- Does this mean that existing QROPS holders under current rules will not be held liable for any tax implications ?
- Otherwise what is the point of including this clause ?
Limit on tax-free payments
Currently: Existing QROPS holders tax-free payments are limited to 70% of their fund
Change: HMRC will impose a strict 30% cap on tax-free drawdowns
Questions:
- Is this tax-free drawdown 30% of the fund transferred or 30% of the fund after additional contributions and investment growth ?
- The permitted drawdown between QROPS & SIPP holders is unequal (30% .v. 25%) - because of this inequitable (discriminatory) situation will SIPP or other UK based personal pensions have their tax-free drawdown limit raised to 30% in line with QROPS ?
Tax Residence
Change: Introduce tougher compliance for taxpayers who have left the UK, start a QROPS scheme and subsequently return to the UK
Questions:
- Does this mean that HMRC propose to clarify the Residence status rules to move away from the grey area of interpretation that has suited them for so long ?
Tax Rules
Currently: Most QROPS providers pay benefit gross - based on the assumption that the recipient will settle any tax liability in the country where they live
Change: HMRC wishes QROPS investors to be subject to the tax rules in the country where the QROPS is held rather than the country where they reside.
Questions:
- Frequently the country of residence and the country where the QROPS is held are different and as such attract different underlying tax rates 0 Furthermore ,
- HMRC stance is that QROPS beneficiaries must offset any tax payable by the QROPS scheme in the country where they are held against their tax liabilities in the country where they reside using double taxation reliefs. However, this becomes grossly inequitable where the tax rate of the country of residence is 0% - resulting in no tax in no tax to offset against
General Questions:
- Can compulsory annuity purchases in the UK provide a fair income rather than simply just lining the coffers of the insurance companies ?
- Why are contributions to SIPP's capped whereas company pensions seem to be able to get away with anything - http://www.guardian.co.uk/business/2009/jun/18/rbs-sir-fred-goodwin-pension . In order to get a £700k annual pension at 5% the capital base would have to be £14 million - how does that square with the SIPP life-time limits of £1.5 million ?
- Why have the GAD rules been reduced to disadvantage SIPP holders ?
One has to ask exactly what governments are trying to achieve with this constant sniping against private/personal pensions. The obsession with trying to prevent percieved tax avoidence no matter what the cost is really counter productive, because it sends a message to future generation not to bother with trying to make pension provisions and to just fall back on the state
Essentially HMRC need to start drafting proper thought out rules instead of knee jerk reactions because they fouled up the original legislation; also they need to give a commitment (defined timescale) to produce proper guidance on Residence etc.
Finally because of the long term nature of pension planning etc. HMRC need to give a guaranteed time limits on the validity of their own legislation before it is changed and also never apply anything retrospectively - otherwise they should be accountable for any disadvantage suffered by the public when adhering to the prevailing HMRC rules in place at the time pension planning decisions were made
