The advantages of Guernsey as a QROPS destination were obvious. As a low tax jurisdiction, it has all of the major financial institutions geared up to offer great pension products.
With most business conducted in English and the backdrop of a stable democracy, the Channel Islands have led the offshore investment scene for decades, and investors benefited from that experience.
Guernsey is particularly well known for having beneficial tax treatment for non-residents. With its Qualifying Recognised Overseas Pension Schemes, a number of schemes offered better treatment for non-residents than residents. The effect of this, according to HMRC, was that the schemes were not appropriate for inclusion on the list of HMRC. HMRC suspected that the purpose of the Guernsey QROPS was to be a tax avoidance scheme, rather than as genuine pension schemes in offshore countries.
To be accepted and retained on the HMRC QROPS list, a foreign pension must be regulated and taxed as a pension in its home jurisdiction. HMRC are wary of anything that looks too “false” and set up purely for the purpose of tax avoidance. HMRC does not look into the performance of the schemes or how well they treat their customers (although if they received complaints, no doubt that would prompt some action).
Having learnt of HMRC’s concerns about their QROPS, Guernsey changed some of the schemes to treat residents and non-residents more or less the same, but this was still not enough. HMRC struck over 300 schemes from their list, leaving only a few remaining. As you can imagine, members of those schemes were horrified, and had to make some swift and dramatic changes to their retirement financial planning.
Now that the issue has settled, the Guernsey authorities are licking their wounds in preparation for a rethink of their pension system. With such a strong investment background, this is certainly not the end of the road for Guernsey and offshore retirement planning, although it may take the community a while to devise new schemes that are attractive to investors and compliant with HMRC rules.
In the meantime, delisted QROPS assets have been transferred into those schemes that are still safe and on the list. Emerging financial centres like Malta have mopped up many of those non-residents who are not worried about living in the same place as their money.
Given that Malta is gaining momentum as the go-to place for QROPS, it will be interesting to see what Guernsey comes back with in terms of competition.