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Condition 4 sticking point for Guernsey QROPS

Guernsey’s financial service industry is lobbying firmly against HMRC’s proposed change to overseas pension regulations that says residents and non-residents must be treated equally in terms of tax on benefits paid within any Qualifying Recognised Overseas Pension Schemes (QROPS).

1 February 2012

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While the island’s service providers agree that the majority of proposed changes are appropriate, they are united in their opposition to condition 4. “Most of HMRC’s proposals are directed towards eliminating abuse in parts of the overseas pensions system and this is an aspiration which Guernsey fully supports.

“However, there is a feeling that the new condition 4 unintentionally runs counter to those objectives by having the greatest adverse impact on those cooperative and compliant jurisdictions, such as Guernsey,” said Peter Niven, chief executive at Guernsey Finance, the promotional agency for the island’s finance industry.

“HMRC’s focus in this regard is also surprising because QROPS are designed for pensioners who have permanently left the UK and typically tax is only liable in the pensioner’s country of residence. Therefore, with currently no tax liable for payment in the UK and the expectation of this remaining the same under the proposed new regime, so there will continue to be a net nil benefit to its exchequer.

“The Foot Report commissioned by the last UK government highlighted the positive contribution of flows from Guernsey banks into the UK economy and indeed, much of the funds from Guernsey QROPS are invested through the City of London. For these reasons, we remain hopeful that HMRC will repeal or amend condition 4,” Niven continued.

However, the Guernsey authorities are making contingency plans should the UK decide to push ahead with its proposed changes. The island’s Treasury and Resources Department has announced the possibility of creating a new category of pension scheme which, by extending the tax exemption on pension benefits to residents, is designed to meet HMRC’s proposed revised criteria for a scheme to be considered a QROPS.

The plans for the new, separate pension regime will be considered by the Guernsey Government at its meeting in early March and if approved, will be introduced ahead of any implementation by HMRC of its planned changes from 6 April 2012.

 

 

 

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Tax & Wealth structuring Pensions