The Qualifying Recognised Overseas Pension Scheme (QROPS) regime was introduced from
6 April 2006 in order to permit funds accumulated in UK registered pension schemes to transfer abroad. Transfers to these schemes are permitted tax free up to the limit of the Lifetime Allowance (LTA). They are designed to allow the continuation of pension savings for people who emigrate or non-UK nationals who leave the UK.

In recent times it has been found that some of these schemes were being used as tax planning tools in order to receive beneficial treatment in comparison to the taxation regime in the UK. Draft regulations have been issued which are targeted at stopping abuse. They will apply to transfers to QROPS requested from 6 April 2012.

The regulations stipulate that pension schemes not recognised for tax purposes in their country of establishment will no longer be able to meet the QROPS conditions.

Pension schemes where non-residents have a relief that is not available to residents of the country in which the scheme is established will also no longer meet the QROPS conditions. As a result of the changes, there may be some schemes that will now lose this status. A country that this is known to effect is Guernsey.

However, The Guernsey Association of Pension Providers (GAPP) has confirmed that the States of Guernsey Government is not considering a deregistration of its existing QROPS schemes. Instead their intention is to establish a new pension regime within the jurisdiction that is open to both Guernsey residents and non-residents. It will provide no tax relief on pension contributions, but enables benefits to be paid free of Guernsey tax. This means that they will be able to comply with the new rules beyond 6 April 2012. It will then follow that existing QROPS members will transfer to policies under the new regime, in order to continue to preserve their QROPS held benefits.

Pension schemes established in New Zealand, which have been used to allow individuals to take their pension savings as lump sums, are particularly being addressed. The regulations have been amended so that funds transferred to pension schemes in New Zealand have to be used to provide an income in retirement with at least 70% of the fund. They must also satisfy the minimum retirement age and member residency conditions, or must be a specific type of pension scheme known as a KiwiSaver in the KiwiSaver Act 2006 under New Zealand legislation.

QROPS managers will have to report to HMRC all payments made from 6 April 2012 out of funds transferred from a UK scheme (held as a ‘relevant transfer fund’), for a period of 10 years from the transfer of those funds to the QROPS. Payments include transfers of assets and any other transfer of money's worth. It is only after the tenth anniversary of the transfer that a QROPS manager will need to check whether a member has been a UK resident in one of the last five tax years. If they have, then a report will still need to be made.

Any QROPS ceasing to qualify must provide HMRC with a report within 30 days of the cessation of their QROPS status. This must include the value of each relevant transfer fund and the member specific details in relation to these.

The event report for transfer of a UK registered scheme to a QROPS is no longer due electronically by 31 January following the tax year in which the transfer took place. These instead must now be reported in a paper format within 30 days of the transfer. Form APSS262 has been designed to facilitate this. Much more detail is needed than previously, however, most of this should be supplied by the member due to their new reporting requirement.

Within 30 days of receipt of a request to transfer out to a QROPS, a UK registered pension scheme administrator must issue a request for certain information to the member for completion. Form APSS263 has been introduced for this purpose. In turn the member must provide this data to the administrator within 60 days of their initial transfer out request. This can be satisfied by filling out APSS263 and returning it by the deadline. The form asks for quite a lot of information, including an acknowledgement of the potential liability to both the unauthorised payments charge and surcharge if the transfer is made to a scheme which is not a QROPS. The form includes an extra statement to the regulations, regarding acknowledgement that a future unauthorised payment out of the QROPS could also generate a liability to one or both of these charges.

Without this member information, a transfer would be prevented because the UK Scheme Administrator would not be able to fulfil their event reporting requirement.

Where a UK resident member has already transferred to a QROPS and HMRC subsequently rescinds the QROPS status, the member will not be subject to an HMRC tax charge as a result of this action.

However, the scheme member will in future be responsible for reporting any payments that the scheme makes to them while they are UK resident or were non-UK resident for less than five complete tax years from the date of payment. If the payment is unauthorised then an unauthorised payment charge will be payable.

Transfers made after the date on which the scheme ceased to be a recognised overseas pension scheme will not be recognised transfers. They will give rise to an unauthorised payments charge and surcharge on the member, and to a scheme sanction charge on the administrator. So any affected schemes that do lose their QROPS status will no longer be able to receive transfers from UK registered pensions after 5 April 2012.

This is different from where HMRC discovers that a scheme’s original notification of being a recognised overseas pension scheme was incorrect, as happened to a recent scheme in Hong Kong.

In these circumstances transfers made to the scheme after 5 April 2006 will not be recognised transfers, because the scheme will not have been a QROPS at any time. They will give rise to an unauthorised payments charge and surcharge on the member, and to a scheme sanction charge on the administrator. Though, where the scheme administrator has relied on the fact that the overseas scheme is included on the latest published QROPS list when making a transfer to it, this should be sufficient justification for HMRC to discharge their liability to the scheme sanction charge if the scheme is subsequently withdrawn from the list by HMRC.

If thorough checks are made, this should also provide just and reasonable grounds for HMRC to discharge any liability of the member to the unauthorised payments surcharge.

However, there may still be an unauthorised payments charge liability for the member in these circumstances. Whether that charge is applied depends on the particular facts and circumstances of each individual case.

There is no suggestion that previously authorised schemes would be treated in this way.

Where HMRC removes a scheme’s QROPS status, generally the member can transfer to another QROPS provider, as long as the original transfer was made to the scheme when it was still authorised as a QROPS. That provider has to ensure they are able to ascertain which contributions are UK tax relieved as a condition of accepting the transfer. Where all contributions made to the now unauthorised scheme were made before their QROPS status was removed then the scheme member will not incur an unauthorised payment charge when a transfer to a new QROPS is made.