HM Revenue and Customs (HMRC) is turning the screw on lax administration by Qualifying Recognised Overseas Pension Scheme (QROPS) managers.
A new set of rules proposing clarification and tightening of a number of procedures have been published.
The changes are open for consultation until June 21, 2013, with the full details available for download from the HMRC website http://www.hmrc.gov.uk/news/draft-qrops-regs2013.htm
Many of the proposals are aimed at delisted QROPS schemes, which HMRC has little control over.
But the government wants to make sure tax-relieved pension contributions transferred to these schemes are available for funding pensions and that investors do not gain any unfair tax advantages over other retirement savers.
A delisted QROPS is a scheme that has either voluntarily declined to accept transfers from a UK pension or a scheme that HMRC has barred from accepting transfers.
The new proposals introduce a new term for a delisted scheme barred from taking transfers – calling them ‘excluded’ QROPS.
HMRC can exclude a QROPS for displaying ‘significant failures’.
Under the proposals, this is likely if the QROPS fails to give information that HMRC considers significant or HMRC has reasonable grounds for suspecting the QROPS is involved in tax avoidance or evasion.
The word ‘significant’ is not defined, leaving HMRC a wide-ranging power, while guidance with the draft legislation suggests each case will be considered on its own merits.
QROPS reporting requirements
From the date the new rules come into force – which has yet to be set – excluded schemes must tell HMRC about payments from the QROPS to members, any transfers of funds switched to the QROPS from a UK scheme and changes to the QROPS set-up.
The rule applies to QROPS excluded on or after the date the new rules become law, so current delisted QROPS schemes are exempt from the reporting requirements.
Excluded QROPS must continue to report to HMRC for as long as the fund contains transferred-in money from any UK registered pension or the information for reporting is more than 10 years old and the fund member is not UK resident and has not been UK resident for five complete tax years or the current tax year.
If a QROPS is excluded, UK pensions are barred from transferring funds to the QROPS and any tax-relieved transfers are considered unauthorised withdrawals and become subject to tax and penalties.