by Paul Beckwith [email protected]
Paul Beckwith is an International Financial Advisor working with Blacktower Financial Management (International) Limited.
The new legislation has no adverse tax consequences for clients transferring their pensions to a QROPS and, importantly, the legislation will be simpler and clearer for all.
Several jurisdictions do not currently meet the proposed qualifying criteria and this means schemes from these jurisdictions may lose their QROPS status at midnight on April 5, 2012.
However, HM Revenue & Customs (HMRC) has given the guarantee that all members in these schemes are protected, as their transfer to the QROPS will give rise to no tax and, provided that the schemes have been run within the rules, particularly in the first five years of non-UK residency, there should be no adverse tax implications. Hence clients are being protected.
In addition, during the consultation period regarding these changes, which ended on January 31, affected jurisdictions and providers made their case to HMRC. The view was that the changes would not be amended and would come into force on Q-day, with some suggesting a small postponement to the enforcement of the new criteria.
Reality and circumspection are, however, ruling the day, and affected jurisdictions are addressing the proposed changes head-on, by looking to adapt their tax legislation accordingly. The big question is whether or not they will get them in on time, which from reports seems likely, particularly for Guernsey, which is by far the largest player in the market.
New legislation always leaves a period of time where the old legislation is still in play, and QROPS is no different. Hence the time is now for clients and advisers who want to transfer schemes under the current rules and current practices, rather than the post Q-day rules which are not retrospective.
This may be particularly beneficial to clients who have been non-resident for a full five years, as the new reporting rules should not apply to them. Pension transfer is not a speedy business however, and paperwork should be done as soon as possible as there are just a few weeks left to make a transfer.
Of all jurisdictions, Guernsey has the most to lose as the market leader, measured in terms of pension assets under administration. While it is neck-and-neck with New Zealand in terms of transfers, the primary reason for using New Zealand is encashment, so when the chips are down it is assets that drive revenues and provide jobs.
Hence, economics and politics will naturally favour Guernsey, in terms of evolving a suitable tax regime to ensure qualification with the tax recognition requirements and in particular Condition 4.
In terms of how this will be achieved, one only has to look to the enhancements of Condition 2, where significant detail and clarity has been provided by HMRC, which allows either tax relief or tax exemption to apply to a scheme.
In other words, tax relief or tax exemption can be applied to contributions either going in or coming out of a scheme, but not both.
Condition 4, the new condition, simply ensures that this treatment is applied consistently to the member irrespective of residence.
My guess is that this will lead to a new range of retirement saving vehicles from several jurisdictions in the months to come, but now it provides the necessary framework around which Guernsey can evolve its legislation.
Guernsey’s ability to evolve has always been their main strength, as they have always shown a capability to re-invent themselves over the past decades. Speed, flexibility and creativity have always been the jurisdiction’s key strengths and points of competitive differentiation over many other territories This has not changed.
It is safe to say that Guernsey is working at an advanced stage in terms of adopting measures to ensure qualification post Q-day. Whether this will be achieved by the deadline only time will tell, but the likelihood of a positive outcome is high, which bodes well for the jurisdiction and those advisers that favour Guernsey product and provider support.
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As an Independent Financial Adviser, Blacktower seeks to ensure that our clients receive the advice suitable for their specific circumstances. Please csontact us for further details 289 355 685.
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