UK changes to what are called qualifying recognised overseas pension schemes trusts have potentially big attractions for certain individuals. This article delves into the fine print.

The following guest article is from Christopher Coleridge Cole, who brings no fewer than 39 years of experience in the estate protection and succession planning industry. He is managing partner of Gresham Street Partners, an independent fiduciary facilitator that advises people on qualifying recognised overseas pension schemes, and qualifying non-UK pension schemes (QROPs, and QNUPs, for short.) Such structures have been controversial in the past and with governments constantly seeking to tighten controls on certain forms of tax avoidance. Therefore, obtaining clear guidance on robust schemes is essential. Recent changes in policy by the UK government have put a spotlight on the advantages/risks of these structures. As the author says, we are now in an election year in the UK, with polls due in May, and a possible change of government raises uncertainties.

The views expressed in this article are those of the author and not necessarily endorsed by the editors of this publication; they are, however, grateful for the chance to share these insights with readers. Gresham Street Partners is authorised in Dubai and regulated in Hong Kong and as approved fiduciary introducers in Guernsey, Gibraltar and Malta.

HM Revenue & Customs, the UK tax-collection body, has announced it is permitting QROPS trusts (which permit the transfer of UK pensions offshore) to be enacted into law in the same manner as finance minister George Osborne’s new rules for UK pensions that he is bringing in April 2015: the 100 per cent encashment commutation of them once the settlor/pensioner reaches the age of 55.

This development will be good for all advisors, who will have new funds under management, as well as those who already have UK pensions or indeed QROPS trusts. Once someone has a QROPS in place for a full fiscal year, he or she can access the full value without any tax payable to the UK. A person can then invest wherever and however he or she wishes. This is, however, dependent on where a person remits the funds – that will determine any tax to be paid, but that happens only on what is remitted at that stage.

The tax paid will be considerably less than in the UK for those living in locations such as Portugal, Andorra, Italy, Monaco, Luxembourg, Bermuda, BVI, Bahamas, Republic of Ireland, Cyprus, the Asia-Pacific region, Middle Eastern nations, parts of South America – and of course, Switzerland. In most of these countries the tax paid will be zero.

UK resident non-domiciles of any nationality will also benefit hugely from this situation because they do not pay tax on overseas earnings. Until they remit these funds the monies are tax-free and can be invested as such.

Those who should be licking their lips at the prospects of all this are those advisors and clients with UK pensions or QROPS already established who:

-- Currently live outside the UK & are resident in the jurisdictions mentioned above;

-- Intend to retire abroad; and

-- Are UK resident but non-domiciled, for the reasons mentioned above.
For the technically-minded, this policy move was announced in a business tax policy paper drafted by HMRC on 19 December last year (which probably explains the lack of coverage of it until now) on changes to the Taxation of Pensions Act 2014, published as a draft Statutory Instrument on Overseas Schemes. We believe this will be enacted with the remainder of last November’s Autumn Statement proposals, including the 100 per cent commutation of UK pensions, in the April budget this year.

However, let me finish on a word of caution. This position looks fine while the current Conservative/Liberal Democrat government is in control. It is likely that the opposition Labour Party will be against the Conservatives’ recent pension revolution (which unlocks pension plan members’ freedom to use their money) and may try to reverse course if they return to office. While that development wouldn’t be likely within the next few months, it would quite possibly form part of next year’s budget if there is a change of government.  It is probably therefore not something worth prevaricating about once it clearly applies to a client or advisor.