Confident about the future of Guernsey’s QROPS industry

30/01/12

A number of people are assisting Guernsey's pensions industry to respond to the proposed changes from Her Majesty´s Revenue and Customs (HMRC) to Qualifying Recognised Overseas Pension Schemes (QROPS) and they are confident that Guernsey will continue to be an attractive jurisdiction for the establishment of QROPS. 

Since 2006 UK legislation permits non-UK pension schemes to attain the status of a QROPS which enables such schemes to accept pension transfers from UK registered pensions. QROPS offer the ability to UK pension savers now living, or planning to live, out their retirement outside the UK to transfer their pension funds out of the UK without suffering adverse UK tax consequences. Guernsey rapidly became the jurisdiction of choice for many QROPS schemes and is believed to account for approximately one third of all QROPS schemes. 

Although HMRC has raised no Guernsey-specific concerns, it is well known that concerns have arisen regarding alleged abusive practices in other jurisdictions; this appears to be what has motivated HMRC's proposed changes which will however apply to all QROPS jurisdictions. Among other changes, the proposed new regulations will impose greater reporting requirements on administrators of QROPS.

HMRC intends to impose a new "Condition 4" which will require all jurisdictions, in which QROPS are administered, to grant the same exemption from tax in respect of benefits to all members of the QROPS schemes, irrespective of where the member is resident. Jurisdictions that do not comply with Condition 4 will no longer be accepted by HMRC for establishing QROPS.

Guernsey resident members of QROPS are currently taxed in Guernsey on benefits received whereas non-Guernsey members are not. If the proposed changes take effect, Guernsey's existing schemes would no longer comply unless changes are made to the way Guernsey taxes benefits under Guernsey-based QROPS. 

The Guernsey Association of Pension Providers is in the process of formulating a detailed response to HMRC. Industry's principal concern centres on Condition 4 and its ramifications. 

A leading pensions’ expert in Guernsey has stated, “Condition 4 remains subject to consultation and may yet be revisited or even be withdrawn.

“However, as we see it, if Condition 4 is imposed, Guernsey has two options. The first is to tax both Guernsey and non-Guernsey residents in the same way on their Guernsey source pensions’ income. Such a move may however cause non-Guernsey members to be taxed on their pension income both in Guernsey as well as in their home jurisdiction and would immediately place Guernsey at a competitive disadvantage when compared with other QROPS jurisdictions that may not impose such a tax.”

“The second option would be for Guernsey’s existing system of taxation of personal income to provide that no Guernsey tax would be payable on pension distributions received irrespective of where the member resides. Such a pension arrangement would have to be open to Guernsey and non-Guernsey residents alike.” 

"The second option is clearly the more desirable provided it can be established in a way that would protect Guernsey's income tax base,”.

“A lot of time and effort has been spent over the last weeks by various people in Guernsey pensions and tax sectors as to how best to achieve a positive outcome for Guernsey and the pension savers it serves.

“It has been, and continues to be, a real team effort involving the co-operation of industry, professional advisers, public servants and politicians in a way that promises a positive outcome.

They also added, “We are cautiously confident that Guernsey will be able to respond effectively, and within the limited time available, to meet the challenges presented by the proposed regulations and that we should be able not only to preserve but even enhance the island's standing as the leading international QROPS jurisdiction,".

What is clear is that now, more than ever, it is imperative that you seek professional independent financial advice not just about whether to transfer pension benefits to QROPS, but also about which jurisdiction will be best for that pension in light of proposed changes.