QROPS pension offers tax bolthole for EFRBS and EBT savers
Transferring funds in to a QROPS pension is a viable option for senior executives with employer financed retirement benefit schemes (EFRBS) who face pension savings restrictions under the recent government clampdown on the schemes.
About 100,000 investors are victims of anti-avoidance measures that are now in effect – and in April 2011 face even more restrictions linked to the levels of contributions.
Then government effectively closed EFRBS because they are considered a tax loophole for the wealthy.
Now, EFRBS investors face higher tax bills as perks that allowed contributions free of income tax and national insurance were withdrawn after the Treasury discovered some employers were avoiding corporation tax by running the schemes.
From April, new pension rules limit the annual allowance to £50,000 of savings in to a pension with tax relief, while the lifetime allowance is reduced by £300,000 to £1.5 million.
HM Revenue and Customs (HMRC) are seeking to bring back £500 million a year in lost tax from disguised remuneration schemes like EFRBS and employee benefit trusts.
Transferring offshore funds in to a QROPS pension
The Treasury is also taking anti-tax avoidance action against other similar schemes, like employee benefit trusts (EBT) that are much favoured by professional contractors and consultants.
EFRBS pension investors who are expats or who intend to move permanently outside the UK within six months can transfer their EFRBS funds in to a QROPS pension without any tax penalty or repayments of any tax relief.
Employers can then continue to make contributions in to the QROPS pension– but the new contributions will not accrue any tax relief.
The QROPS pension saver receives all the benefits of the registered offshore scheme – including tax-free growth on incoming transfers – but also has no lifetime allowance limit on any contributions made after the transfer.
The alternative for EFRBS investors is to receive taxable cash payments or bonuses to top up their retirement savings as the EFRBS or EBT now offer no tax benefit to pension savers.