The legislation came into force on 6 April 2006 (widely known as “A Day”) and permits the transfer of UK tax relieved pension benefits to overseas schemes that meet certain qualifying conditions. It is also possible to transfer pension funds from UK schemes that are already paying out retirement benefits.

Eligibility
To qualify as a QROPS, there is a requirement that the overseas pension scheme must provide benefits broadly similar to those that would be available in a UK registered scheme. The scheme must be open to residents of the country in which the scheme is established as well as to non residents. Approval of a pension scheme as a QROPS is provided by HM Revenue & Customs (HMRC) and there is a requirement that the trustees of the scheme undertake to provide certain information to HMRC on benefits paid from the scheme in certain circumstances which are described below.

The trustees must provide a report to HMRC in relation to any benefits paid from the scheme where the member is either resident in the UK at the time a payment is made, or non UK resident but has been resident in the UK earlier in the tax year in which the payment is made or in any of the 5 tax years immediately preceding that UK tax year. After 5 tax years of non-UK residence, the trustees are no longer required to report the payment of any benefits to HMRC.

Advantages of a QROPS
There are advantages for a person with accumulated rights in a UK registered pension scheme who is no longer UK resident, or is planning to shortly cease being UK resident, in transferring their UK pension funds to a QROPS:

• Avoiding the requirement on certain UK pension schemes to purchase an insurance based annuity by the time the member reaches 75 years of age.
   
• The avoidance of excessive UK tax charges of up to 82% on any remaining funds on the death of the member where he has been able to defer purchasing an insurance based annuity by drawing an “alternatively secured pension” directly from the fund. Depending on the tax laws in the member’s country of residence, this allows for much higher residual funds available for distribution among the member’s heirs.
   
• Benefits from Guernsey schemes can be paid gross to all non-Guernsey residents whereas pensions from a UK registered scheme to a non UK resident member will not automatically be paid gross. Whether or not there is a liability to UK tax will be dependent on the provisions of any double taxation treaty between the member’s country of residence and the UK. Benefits payable to Guernsey resident members of a Guernsey scheme will be subject to the deduction of Guernsey tax at source.
   
• Provided they have completed 5 years non UK residence, members of the scheme have greater flexibility as to the method and levels of benefit payments.
   
• For individuals who are likely to live in several different jurisdictions, locating their pension scheme in a single tax efficient jurisdiction such as Guernsey without having to transfer it on each move to a new country of residence would be highly attractive.
   
• There is much greater flexibility as to the investment of the funds and the trustees are able to invest in a wide range of asset classes and take account of the member’s wishes in relation to the investment of the funds.
   
• The QROPS is a useful estate planning tool as a member can elect for dependants to benefit from his pension fund on his death. If the member is non Guernsey resident, the death benefits would not be subject to any Guernsey tax and consequently would be received gross by the beneficiaries. It should be noted however that the payments may be subject to tax in a beneficiary’s own country of residence. On the death of a Guernsey resident member of a Guernsey QROPS, the death benefits will be subject to a Guernsey tax charge of 20% and the remaining fund can be distributed without any further deduction of tax and in accordance with the member’s wishes.
   
• If the Guernsey resident member of the Guernsey QROPS dies before any benefits are drawn, the fund will not be subject to a Guernsey tax charge and the fund can be distributed to beneficiaries without any deduction of Guernsey tax.

How Praxis can help
Praxis Fiduciaries Limited provides independent trustee services as well as trust and company formation and administration services. The company can establish and administer QROPS and obtain the necessary approvals from HM Revenue & Customs and the Guernsey Tax Authorities.

For more information visit Praxis QROPS