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Ten Year Reporting

The increased reporting period for scheme trustees from five to ten years is another HMRC measure aimed at stopping the abuse of the QROPS (Qualifying Recognised Overseas Pension Scheme) legislation. It is important to note that this change should not be conflated with a client's non-resident tax requirements which remain unchanged. In practice this means that any payments from the QROPS will now be reported for the first 10 years the pension is in force.

The non-residency rule after 5 years still applies, anyone who has transferred to a QROPS and has been non UK resident for more than 5 years will be able to pass the fund to their beneficiaries as a lumps sum without being subject to the 55% unauthorised payment charge applied to UK pensions.

Pension Commencement Lump Sum

The option of taking 100% of the pension as a lump sum payment is now prohibited. Under the previous legislation this practice was widely promoted by some advisers and jurisdictions such as New Zealand benefitted greatly. There has always been a question mark as to whether the practice adhered to the 'spirit of the law' and the uncertainty has now been removed by HMRC. Any QROPS from April will only be able to offer a maximum of 30% as a commencement lump sum with the remaining 70% of the fund used to provide an income for life.

Guernsey

Guernsey has been hit hardest by the changes; Guernsey amended its domestic pension law to introduce new provision to comply with the new legislation. However HMRC have failed to recognise the new pension scheme as it contravenes a clause in their most recent QROPS guidance, which states that any country or territory which "makes legislation or otherwise creates or uses a pension scheme to provide tax advantages that are not intended to be available under the QROPS rules" would find such schemes "excluded from being QROPS". Guernsey pension providers will no longer be able to accept transfers of UK pensions unless the applicants intend to reside in Guernsey. For those people who already have a Guernsey QROPS their pensions will be unaffected but they will not be able to transfer any additional UK pensions to the current scheme.

Malta

Malta is set to become the most popular QROPS jurisdiction despite being a relative new comer to the QROPS market. Malta has an advantage over other jurisdictions as a member state of the EU and with more than 50 double taxation agreements in place. From an EU legislative position, Malta clearly has a strong argument, in addition, its low-tax environment and remittance tax basis is accepted within the EU, giving it an economic, political and legislative advantage.

Interestingly, Malta is not actually prescribed to meet the 70% rule either. This is because it qualifies as a QROPS jurisdiction by virtue of its full EU membership. Hence the jurisdiction has scope for significant innovation around pensions.

QROPS offer many advantages and the additional flexibility is the overwhelming reason why many people decide to transfer their pensions away from the UK. An important factor often overlooked is the tax implications in respect of your pension income. How and where your pension is set up can have a huge impact on the amount of tax you may have to pay.

The taxation of pension income is a complex area especially in Spain; Scottsdale is ideally placed to help. Scottsdale Overseas enjoys a close working relationship with Scottsdale Consulting; the highly respected UK based Independent Financial Advisers. This liaison means that you can be confident that your adviser understands UK pension tax and the taxation of pensions in Spain. We offer impartial advice as to whether or not a transfer to a QROPS or other overseas pension is the most appropriate way to maximise your pension income.

Whilst tax is unavoidable, reducing the amount of tax paid will allow you to enjoy a better income from your pension. Our aim is simple; to guide you through the financial implications, opportunities and pitfalls that living abroad brings.