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By Daily Market Brief - Tue 29th May 2012

 

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QROPS Update: The Effects of the Finance Act 2012

The publishing of the UK budget on March 22nd 2012 has answered many of the questions raised by the issuance of the draft paper on December 6th 2011. As had been expected, all of HMRC's proposals from that consultation paper have now been ratified by this new legislation. The new conditions which are to be met post April 6th, 2012 are namely:

• Equal tax treatment of residents and non-residents alike.
• Any distributions from the scheme must be reported for 10 years following the date of transfer.
• Clarification that the pension commencement lump sum (PCLS) withdrawal is limited to a maximum of 30% of the members funds with the residual amount used to provide a life time income.

Equalised Tax Treatment

The equalisation of tax treatment between residents and non-residents is a preventative measure to stop the perceived abuse of the system by certain jurisdictions. No longer can a jurisdiction rely upon double taxation agreement (DTA’s) provisions to in order comply. This created a challenge for some jurisdictions which like the UK - only taxed local residents. From April the pension income of both residents and non-residents must be taxed equally.

QROPS offer many advantages and the additional flexibility is the overwhelming reason why many people decide to transfer their pensions away from the UK. An important factor often overlooked is the tax implications in respect of your pension income. How and where your pension is set up can have a huge impact on the amount of tax you may have to pay.