QROPS allow expats to save tax on their pensions, but only if you play by the rules.
The QROPS rules have significant teeth. If you break them, you could be liable to a penalty of up to 55% of the value of your pension fund. By breaking the rules (intentionally or unintentionally) your pension is deemed to have been taxable and you may have to back pay the tax due and any interest.
How can you fall foul of the QROPS rules?
Unfortunately, falling foul of the QROPS rules is very easy without proper professional advice. There are two main ways to can slip up, even where there is no positive intention to cheat HMRC.
- Residency. When HMRC say that you have to be non-resident for five years or more, that is exactly what they mean. So if you return after four years and three hundred days, you can still expect to pay penalties. The concept of “residency” for tax purposes is not clear cut, so you need to be careful that you do not accidently become a resident again.
The rule used to be that you must not spend more than 90 days in the United Kingdom. However, recent case law means that even if you spend less time than that in the UK, if your life appears to be based there (with close family members living there) then you may still be classed as a resident. It is best to get professional advice if you are concerned about this.
- Your QROPS falling off the list. If this happens to you, as it did to thousands of Guernsey QROPS investors, you need to act quickly to avoid penalties and find another home for your money. The Guernsey QROPS community is still reeling after HMRC booted more than 300 of its schemes off the list.
An international effort
The Organisation for Economic Co-operation and Development (OECD) is co-ordinating a worldwide effort to act against tax avoidance, both by individuals and corporations. It is true that they are mostly looking at anti-evasion and money laundering, but it is only a matter of time before they turn their attention to tax avoidance.
To organise your affairs in the most tax efficient and legal way, it is important to get professional advice from someone who has experience of international finance.