As Guernsey QROP providers will be aware, on 6 December 2011 HMRC announced its intention to make amendments to the current QROP regime.
The proposals, which are still in draft form but which are expected to take effect from 6 April 2012, impact significantly on Guernsey's ability to operate pension schemes that are able to accept transfers from UK registered pension schemes.
The proposed change causing Guernsey most difficulty is a new requirement that local and non-local members of a QROP scheme receive the same tax treatment on receipt of benefits in the jurisdiction in which the QROPs is established. At present Guernsey residents are taxed on the benefits received from a Guernsey pension scheme but non- Guernsey resident members are not. Without any action on Guernsey's part if the proposed UK changes go ahead then from 6 April 2012 Guernsey will no longer be able to undertake QROPs business.
In order to ensure that Guernsey remains open for QROPs business the Guernsey Association of Pension Providers (GAPP) has now revealed what it is calling 'The Guernsey Solution'. The Guernsey Solution involves the creation of a new form of pension scheme (to be created by the implementation of a new section of the Income Tax (Guernsey) Law, 1975) to be known as the 'section 157E scheme'. No Guernsey tax relief on contributions, no Guernsey tax charge on benefits received regardless of the resident status of the member, and benefits payable from age 55 with no upper limit on benefit payments, are the key features of the proposed new section 157E schemes.
It is proposed that existing section 157A and section 150 schemes may elect to be approved under the new section 157E instead (which may involve changes to scheme documentation). GAAP has received advice from a leading UK barrister that section 157E schemes should meet all the requirements of the proposed new QROPs regime. Therefore if existing section 157A and section 150 schemes with QROPs status convert to section 157E schemes by 6 April 2012 it should allow them to retain their QROPs status and continue to accept transfers from UK registered pension schemes.
It is proposed that a section 157E scheme would be able to accept transfers from other Guernsey pension schemes but in order to protect Guernsey tax revenues transfers would be subject to a tax charge on those funds derived from contributions which have benefited, or could have benefited if there had been no tax relief limits, from Guernsey tax relief. Therefore conversion to a section 157E scheme may be unattractive if the QROPs includes any such funds.
It will not be until 29 March 2012, when the UK's Finance Bill 2012 is expected to be published, that we will have any certainty as to the final form of the new QROP regime. The new proposed Section 157E of the Income Tax (Guernsey) Law, 1975 is also still in draft form but GAPP are hopeful that it will be enacted on 26 March 2012.
The new section 157E schemes will need to be approved by the Guernsey Income Tax office and therefore any schemes wishing to convert to a section 157E scheme will need to seek approval. The Income Tax office has issued a deadline for submission of scheme transfer applications which require processing prior to 6 April 2012 of 16 March 2012.
With these timings in mind it is vital that all QROPs providers consider the options available as a matter of urgency. Depending on all the circumstances it may not be appropriate in every case to seek to convert to a section 157E scheme. Each QROP scheme should be considered on a case by case basis and appropriate professional advice sought.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
