Qualifying Recognised Overseas Pension Schemes (QROPS)
HMRC issue updates to Pensions via the Registered Pension Schemes Manual ( RPSM ). There are normally vast amounts of technical detail but careful review usually throws up some interesting developments:
QROPS AND TAXABLE PROPERTY
The Taxable Asset Transfer Fund attributes payments to a relevant transfer fund. In this case the amount transferred from a UK registered Pension to a QROPS.
The taxable property unauthorised payment charge is not a member payment charge under schedule 34 of the Finance Act 2004. It applies regardless of whether or not a transfer member has been non UK resident for more than five tax years. Nor is there any time limit on the requirement that the manager of a QROPS reports to HMRC any payments that are referable to a transfer member´s taxable asset transfer fund.
HMRC on October 27th 2009 updated the Pension scheme manual to confirm that residential property is a taxable property asset along with the usual, fine art, antiques, fine wine, boats, cars etc.
These tangible moveable assets if purchased within a QROPS will be subject to the taxable property unauthorised payment charge:
Tax charges on taxable property
If a QROPS invests in taxable property, as well as there being an unauthorised payment charge on the member of 40% of the property’s value, the scheme administrator will be liable to a scheme sanction charge of 15%.
Any income from the taxable property would be taxed at 40% and any capital gains earned as a result of the disposal of such assets would also be taxed at 40%. If the income from the property was less than 10% (e.g. as with ground rents) then the tax would be based on 10% of the property’s value.
The underlying investments within a QROPS must be carefully considered. The impact of how investments are held and who controls them can lead to liabilities from HMRC and from your new country of residence.
A QROPS is not simply a domicile for the Trust or vehicle holding your QROPS fund. The underlying assets should be offshore to avoid UK Tax.
RPSM14101020 confirms that QROPS status does not confer on an overseas scheme the tax exemptions to which a registered pension scheme is entitled.
In particular, it does not affect the scheme´s liability to UK tax on any income it has from UK property. And if a QROPS invests in a UK-based unauthorised unit trust any gains accruing to that unit trust remain chargeable if the overseas scheme is exempt from capital gains tax or corporation tax on such gains only by reason of its residence.
Further consideration should be given to how your residence affects the QROPS. Whilst self investment is commonly available countries that do not recognise Trusts may seek to tax you on an arising basis, arguing that it is you the individual controlling the investment decisions and should pay tax annually on the fund as well as the income. Discuss these issues with you adviser carefully and as with any UK authorised and regulated firm – get it confirmed in writing.
This article has been provided by Gerard Associates Ltd.
For more information contact:
Gary Barlow Tel: +44 (0) 1884 250118