The U.K.’s HM Revenue & Customs (HMRC) temporarily suspended its published list of Recognised Overseas Pension Schemes (ROPS) on June 17, 2015. New legislation provides that a non-U.K. pension plan cannot be a ROPS if benefits are payable before age 55 (except in cases of ill-health), insofar as such benefits represent funds transferred to that plan from a U.K. Registered Pension Scheme (U.K. Scheme) and will also prevent such a plan from being a Qualifying Recognised Overseas Pension Scheme (QROPS) – as all QROPS must also be ROPS. While certain funds transferred between schemes will be tax-free, others will be subject to U.K. tax charges of up to 70 percent. The new minimum age requirement is likely to affect many plans in countries that have a well-established QROPS market, for example New Zealand and Australia. Please note that, even where a plan appears on the re-issued HMRC list, caution should still be exercised.
The U.K. tax authority, HM Revenue & Customs (HMRC), temporarily suspended its published list of Recognised Overseas Pension Schemes (ROPS) on 17 June 20151. The list will be re-issued in updated form by 1 July 2015. This follows the introduction of new U.K. legislation2, effective as from 6 April 2015, which:
(a) provides that a non-U.K. pension plan cannot be a ROPS if benefits are payable before age 55 (except in cases of ill-health), insofar as such benefits represent funds transferred to that plan from a U.K. Registered Pension Scheme (U.K. Scheme); and
(b) will also prevent such a plan from being a Qualifying Recognised Overseas Pension Scheme (QROPS) – as all QROPS must also be ROPS.
Prior to 6 April 2015, a minimum age requirement applied only in relation to certain countries.
Traditionally, many QROPS have permitted benefit withdrawals before age 55 (at least in certain circumstances). As from 6 April 2015, however, any non-U.K. pension plan not meeting the new minimum age requirement will have automatically ceased to be a QROPS even where continuing to appear on HMRC’s list (prior to the list’s suspension).
Any funds transferred to a non-QROPS from a U.K. Scheme will potentially be subject to U.K. tax charges of up to 70 percent. By contrast, a transfer from a U.K. Scheme to a QROPS should be tax-free (insofar as the funds transferred do not exceed certain limits).
The new minimum age requirement is likely to affect many plans in countries that have a well-established QROPS market – for example, New Zealand Kiwisaver plans, which permit members to make certain early withdrawals (e.g., to fund a first home purchase), and Australian superannuation plans, which also permit members to make certain early withdrawals (e.g., in cases of severe financial hardship).
Alternatively, a plan might not permit early withdrawals, but have a normal retirement/benefit payment age lower than 55.
Some individuals will have made transfers to non-U.K. pension plans between 6 April 2015 and 17 June 2015, when such plans still appeared on HMRC’s list but did not satisfy the new minimum age requirement. Such transfers could potentially be taxed at up to 70 percent – although it remains to be seen exactly what position HMRC will take.
However, transfers made before 6 April 2015, to plans that have now ceased to be QROPS should not normally be affected.
Going forward, it seems that many non-U.K. pension plans will need to amend their rules in order to satisfy the new QROPS criteria.
In some cases, foreign legislative changes may be required.
Please note that, even where a plan appears on the re-issued HMRC list, caution should still be exercised. HMRC has always stressed that inclusion on its list is no guarantee that a scheme is a bona fide QROPS – a non-U.K. pension plan will need to satisfy both the minimum age requirement and other criteria imposed by U.K. legislation.
Flash Update! Just as we went to press with this Flash Alert, HMRC published the new list.
The list has been revised to remove a number of schemes, for example certain schemes based in Australia where the schemes do not meet the minimum age requirement.
1 HMRC’s “Guidance: Temporary Suspension of the Recognised Overseas Pension Schemes Notification List.”
2 See: the Overseas Pension Schemes (Miscellaneous Amendments) Regulations 2015 (the 2015 Regulations), which introduced the new “minimum age 55” requirement and The Pension Schemes (Categories of Country and Requirements for Overseas Pension Schemes and Recognised Overseas Pension Schemes Regulations 2006 (the ROPS Regulations) – as amended by the 2015 Regulations.
For further information or assistance, please contact your local GMS or People Services practice professional or one of the following professionals with the KPMG International member firm in the United Kingdom:
Tel. +44 (0) 20 7311 3363
Tel. +44 (0) 20 7311 4077
Tel. +44 (0) 20 7311 3455
The information contained in this newsletter was submitted by the KPMG International member firm in the United Kingdom.
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