New QROPS rules will improve industry
The new rules on QROPS will ultimately lead to an improvement of the QROPS industry in offshore pension schemes, according to Anna Morris, Director of Rochester International.
The new rules, announced in draft regulations which are set to become effective from April 2012, were introduced to prevent ‘ scheme busting’ by offshore schemes , particularly New Zealand based QROPS schemes, whose aim was to extract 100% tax free cash from their offshore pension schemes.
Under the new QROPS rules, a schemes must use at least 70% of the transfer value into a QROPS scheme to provide the offshore pension, and a maximum of 30% of the QROPS transfer value can be used to provide a tax free cash sum of up to 30%.
Also the offshore pension cannot be paid at a different rate of tax to that of the local residents. For example, if a QROPS scheme is of Isle of Man jurisdiction, then the rate of income tax from the QRPS (currently 0%) cannot be different to that paid by local residents i.e. 20%. If there is a discrepancy in rates, then the offshore scheme will no longer be granted QROPS status, and will instead be siply a registered overseas pension scheme.
In addition, the period required for there to be no reporting requirement for a QROPS has been increased from 5 years of non UK residency to 10 years from the date of transfer.
The overall effect of these changes in QROPS legislation is that there are still very significant tax advantages to these very popular overseas pension schemes, and Anna Morris is of the opinion that QROPS scheme are very much here to stay:’ The new QROPS rules are a blueprint which will establish QROPS as the overseas pension of choice for the discerning expatriate client, and we envisage them being around in the offshore pension arena for a long time to come’.