UK Pensions Tax Jersey
changes in Pension Law - offshore considerations and the Lifetime allowance
Pensions are always a contentious issue and one always guaranteed to spark lively debate. Here, David J Petit Chairman of Apex Trust Company Limited, tells Lawyer Monthly all about the recent changes in UK Pension Law. Apex Trust Company Limited is a trust company incorporated and carries out business in Jersey.
K pension law and rules were revolutionised by the Finance Act 2004 (the “FA 2004”) but the changes were always going to be part of an on-going Government strategy to ensure that the use of tax
relieved contributions to pensions would be closely monitored. Recently there have been a number of significant changes with particular focus on the use of offshore jurisdictions and especially those which advertised their services through qualifying recognised offshore pension schemes (“QROPS”). QROPS may receive transfers from registered pension schemes as authorised payments for the purposes of Section 164 (and see s169) of the FA 2004.
Some of such offshore jurisdictions have effectively had their status as providers of QROPS removed by new rules.
The combination of the QROPS crackdown and the reduction in the lifetime allowance to £1.5 million means that there is much less room for manoeuvre as regards planning in connection with such pensions.
Economic Situation It will hardly be news to the reader that the present economic crisis has engendered a very aggressive stance from HMRC to anything that it sees as likely to result in less tax being paid. The next extension of this underlying factor will be the introduction of GAAR (the General Anti-Avoidance Rule).
Whether the reduction of the lifetime allowance back to £1.5 million is justified depends upon your point of view. If you consider that the government is entitled to view the health of the economy as fundamental and the overriding concern is to reduce the budget deficit then you will
have some sympathy in the policy of the government. Those who have paid into a UK pension may view the position differently of course.
the offshore Position Pre 6 april 2012 Many firms in offshore jurisdictions offered their services as trustees of QROPS for the purposes of receiving transfers from UK based pensions, such transfers being “recognised transfers” for the purposes of Section 164 of the FA 2004.
HMRC has long been aware of the movement of UK pensions to other jurisdictions and it is undoubtedly true that certain transfers were made with the ultimate intention to “pension bust”. These abusive practices have resulted in preventative action being taken by HMRC (see below) which has been to the disadvantage of all those who were properly using offshore jurisdictions, or at least of those who may have sought to benefit in the future.
A warning shot to the offshore industry was fired in the case of Equity Trust-v-HMRC relating to a Singapore scheme which was held not to satisfy the requirements for being a QROPS. Whilst the facts of that particular case were specific it was clear that HMRC was unwilling to allow QROPS to be used other than in a very restricted manner.
the offshore Position Post 6 april 2012 HMRC announced that it would be changing the rules required for a jurisdiction to meet QROPS status and produced a draft statutory instrument and invited consultation. Guernsey, amongst other jurisdictions, entered into discussions with HMRC on the form of the statutory instrument but its representations were to no avail and the statutory instrument was introduced (SI 2012 No 884) on 6 April 2012.
Particular difficulties are likely to be encountered by those persons who were attracted to QROPS but who have remained resident in the UK.
There is much discussion between professionals as to what effect de-registration has on those trusts which were believed to qualify as QROPS (and usually did qualify) prior to 6 April 2012. Specific advice should be sought. We would express some concern that there may be an increased danger that the provisions of Part 7A of the Income Tax (Earnings and Pensions) Act 2003 (effective 6 April 2011) will apply to “relevant steps” taken by such entities even if the taxpayer is no longer resident in the United Kingdom. LM
david J Petit chairman
tel +44 (0)1534 883 605 Fax +44 (0)1534 883 699
Po Box 129, commercial House, commercial Street, St Helier, Jersey JE4 8QS www.apextrustco.com
Regulated by the Jersey Financial Services commission in the conduct of trust company business.