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N MARCH 2010, a Court of Appeal ruling brought new worries to the British expatriate community. The multi-million- pound ruling against Robert Gaines-Cooper and in favour of Her Majesty’s Revenue and

Customs (HMRC) has demonstrated that changing residence is not a straightforward proposition. The case principally revolved around Mr Gaines-Cooper having assets and other links in the UK even though he had lived abroad for a number of years and never breached the rule that non-residents must spend fewer than an average of 91 days per year in the UK over four years. The Court of Appeal judges found that

England had remained ‘the centre of gravity’ of Gaines-Cooper’s ‘life and interests’ even though he technically lived abroad. According to Jeff Barnett, Managing Director at Gower Pensions Management, the case has highlighted HMRC’s “more aggressive approach to taxation and the lengths they will go to collect what they see as legitimately belonging to the Exchequer”. So any legitimate structure that allows UK expatriates to reduce any tax paid to the UK government becomes important. This is where Qualifying Recognised Overseas Pension Schemes (QROPS) come in. These are a list of HMRC-approved foreign pension schemes into which those deciding to permanently emigrate could transfer their pension pot. Anyone who is going to live abroad can qualify for a QROPS. There are many benefits of the schemes, which

are likely to become more popular following the Gaines-Cooper ruling on residency. As Dion Lindskog, Head of Life and Pension Products at RBC Wealth Management, explains: “Leaving your pension plan in the UK when you’re seeking to be considered non-resident in the UK for tax purposes could be risky, as it could be argued that by leaving your pension plans in the UK you have not ‘cut ties with the UK’. Hence a transfer of pension benefits to a QROPS can be an important step in changing residence.” The key benefits of QROPS are tax driven says

Peter Sayers, Director at Horizon Investments (Jersey). “If you leave your fund in the UK, income paid to you will be taxed in the UK even if you live overseas,” he says. “Although you may be able to claim tax back if you leave it in the UK, there are clearly advantages to exporting it to an overseas jurisdiction where you can have the income paid gross.”

Jeff Barnett adds: “It is down to the member to

disclose the income in the jurisdiction in which they are tax-resident. Some parts of the world – Singapore, for example – won’t tax income generated outside of Singapore.” A QROPS also allows members to control how their pension is invested, and there is no requirement to buy an annuity at age 75, so the pension fund assets can pass to beneficiaries.

Each to his own QROPS, however, are not suitable for every expatriate. For example, Sayers says that if you are in a generous UK final salary pension scheme with guarantees around retirement income there may not be benefits in transferring to a QROPS. There are always risks in transferring to a QROPS,

according to Des Jeffrey, Executive Director at Patidar Jeffrey & Co. These include the risks of the jurisdiction to where assets are being transferred, the quality of the company providing your QROPS and potential wrong interpretation of the QROPS rules. “However, these need to be tempered with the benefits that may apply,” he says. “I suggest that relevant pension transfer advice should be sought in this regard.” Many QROPS schemes are based in the Channel

Islands, and many Channel Islands residents are members of a QROPS. Plus, you can have a QROP in the Channel Islands but live elsewhere. Advisers say they are no more complicated than a UK self-invested personal pension, which allows you to make your own investment decisions. However, Rex Cowley, Head of Marketing and Proposition at Close International, says: “Each QROPS provider is different, and depending on your provider they can vary from relatively simple to more complex.” The Channel Islands do have separate pension

legislation from the mainland, but Sayers says that because the currency is sterling and the pension rules are almost identical, if you do emigrate from the UK then it makes sense to bring your pension fund with you. Any transfer from a UK scheme has to go into a QROPS.

Pensions made clearer Although the QROPS legislation has not changed since it was introduced in 2006, further guidance has recently been given clarifying the interpretation of the original rules, particularly in relation to exotic investments in QROPS, such as residential property, fine wine and antiques. Also, as Dion Lindskog says:

“Leaving your pension plan in the UK when you’re seeking to be considered non-resident in the UK for tax purposes could be risky”

June/July 2010 37

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