The QROPS system was designed to allow individuals permanently living overseas to transfer their UK pensions to a pension based in their new country of residence. It was meant to limit individuals to lump sum and pension benefits which are broadly equivalent to the benefits that would have been available to them had they left their pension in the UK.
Since the system was introduced some QROPS arrangements have been promoted as an opportunity to avoid tax with alleged promises of access to 100% of the pension scheme as a tax free lump sum.
The changes announced by HMRC include requirements for:
In addition, the QROPS itself must comply with new requirements to receive HMRC approval. Any tax exemptions offered by the QROPS to non-residents must also be available to residents.
Gareth James, Technical Marketing Manager at A J Bell, said “HMRC has made it clear that it intends to introduce these rules to deal with abuse of the QROPS system. The new reporting requirements will provide HMRC with the granularity it needs to immediately identify transfers it suspects are being made for what it considers inappropriate reasons.
James continued, “It will be interesting to see how the new rules impact on the number of QROPS transfers. If we see a significant reduction it will provide HMRC with an idea of the number of transfers which have been made in line with the Government’s original intentions for the QROPS regime, and also the extent of the abuse of the system since it was introduced in 2006.”