As we have been writing about over the last few months following the withdrawal of 310 Qualifying Recognised Overseas Pensions Schemes (QROPS) of the 313 registered (pre 13 April ’12) in Guernsey we are starting to see an increasing number of clients moving to Malta to use as a jurisdiction for transferring their pension.
The UK Government took this surprisingly robust approach to the Guernsey QROPS market as a consequence of the view of Her Majesty’s Customs and Excise that they were acting out-with the spirit of the scheme. Under European legislation it states that residents and non-residents must be taxed at the same rate if a scheme or policy is domiciled in their country. In Guernsey the exact opposite was happening, consequently HMRC de-registered the vast majority of their schemes. Whilst this rule won’t affect individuals who transferred their pensions prior to April 6th 2012, no longer will the Guernsey financial industry, much to their disappoint, be able to make significant amounts of money through the offshore pension market.
The question is what will happen to other third party jurisdictions like Jersey, Isle of Man and even New Zealand, which since the introduction of QROPS back in 2006 have been a preferred location for transferring a UK pension to. Thus taking advantage of a better taxation environment. Up until now none of the principal 3rd party jurisdictions have not been affected to the extent of Guernsey.
In the case of Malta, it is felt that they are likely to be one of the main benefactors from Guernsey’s QROPS downfall as a consequence of them being within the European Union and thus have double taxation agreements. Malta will tax the income received from a pension at source. Thus due to the double taxation agreements held with the majority of the emigration countries where British pensioners retire to you would not incur being taxed twice. This will be especially advantageous for pensioners who are retiring to countries like Spain, France, Portugal and Australia.
It has been increasingly felt that one of the main reasons why Her Majesty’s Customs and Excise is stamping down on QROPS is that they are losing the UK Treasury vasts amounts of money. It is predicted that around £1.5 Billion has been transferred into QROPS schemes and working on a simple formula that the Treasury would be taking up to 45% of this that they could have lost up to £700 million. In this time of austerity this is not what the Coalition will be happy to stomach.
There is a concern that as HMRC continue to close down schemes that the lack of choice and competition will adversely affect pension holders looking to move abroad, with schemes becoming more expensive as competition reduces.
It is felt that more and more of the QROPS providers such as Sovereign will move their schemes to European Union jurisdictions which with their double taxation agreements, attractive tax rates, are English speaking and have pension rules that are similar to the UK such as Gibraltar that they will become increasingly popular.
No doubt there will continue to be uncertainty over the coming months until the dust settles. For more information on this or any other issue relating to the transfer of your pension overseas, please don’t hesitate to get in touch here.