Wednesday, 24 November 2010

QROPS - Comparing jurisdictions


No series of articles such as ‘Special – Pensions Week’ would be complete without QROPS. This article deals with comparing jurisdictions and also with the key topic of ‘residency’

  • Compare features and benefits

  • Remember the importance of regulation

  • Benefit from income paid gross

In this article I am looking at the 4 major centres for transferring UK pensions to QROPS, namely Guernsey, New Zealand, Isle of Man and Malta.


Guernsey QROPS. Other jurisdictions have dominated the news recently but Guernsey still has all the attributes to continue as the leading base for QROPS and QNUPS. Guernsey has three attributes, not however, unique, have lead to it becoming the market leader;

  1. Income paid gross

  1. Existing pensions expertise

  1. Highly Regulated

In addition it has a long standing prominent position as an Offshore Financial Centre and most of the Trustees, based in Guernsey have been educated and trained in the UK. You can be referred to an appropriate Guernsey provider through an authorised and regulated adviser in Spain if you email me.

In order to explain the advantage of having income paid gross, it is probably a good time to the position of ‘Residency’ in Spain. This is particularly important since it determines where you should be paying your taxes.

British expats in Spain fall into two clear and unambiguous groups;

  • Spanish Residents who are best described as people who have settled in Spain and spend 183 days or more per year in Spain. This group of people are required to pay their taxes in Spain.

  • UK Residents who spend less than 183 days per year in Spain. This group of people are liable, for their taxes, to HMRC in the UK.

The second group are unlikely to benefit from QROPS unless they intend to move away from the UK and become UK non-residents, in which case if they live in Spain, they will become Spanish Residents. To discuss this further, you may need to consult an authorised adviser and I can recommend one if you email me.

Consequently, a Spanish Resident with a QROPS in Guernsey will receive income without tax deducted and will declare the income on their Spanish tax return.

Long before QROPS were first enabled, in 2006, Guernsey had a pre-eminent position as a leading Offshore Financial Services centre. Guernsey’s trust based financial and legal framework makes it ideal for handling UK pension transfers which are also based on a Trust basis.

Investment, Pension and other financial products are regulated by the Guernsey Financial Services Commission (GFSC). The GFSC is a strong regulator and has an excellent reputation for managing compliant business in Guernsey. As much of Guernsey’s business comes from UK, the GFSC has forged close working links with Her Majesties Revenue and Customs (HMRC) and the Financial Services Authority (FSA)

There is also an Association of Guernsey Pension Providers which meets regularly and is in a position to pool expertise and to help adopt strict rules for pension business. Indeed, this organisation will be adopting a Code of Conduct to affirm high standards.

There is one other issue that I’d like to raise and it could be seen as either an advantage or disadvantage, depending on individual needs. Guernsey has a sterling based economy and all transactions are based on the UK pound (£). Therefore, for dealings in Euros there has to be a foreign exchange transaction. It is however possible once a UK pension becomes a QROPS, for this to be held in euros. This is certainly something to discuss with a regulated adviser. Please email me for a recommendation.



New Zealand (NZ) QROPS have one feature which I have not seen in any other jurisdiction. After being UK non-resident for 5 or more complete tax years, the funds held in a New Zealand QROPS can be taken as cash, on the basis of a ‘return of capital’. The big question is why?

All QROPS have to be approved and are regulated and monitored by the UK tax authorities (HMRC). The Trustees of schemes have to report to HMRC all details of cash withdrawals for a period of 5 complete tax years. Those withdrawals must be in line with UK pension rules and law. After 5 complete tax years ( UK tax years starting on 6th April ), there is no requirement for the QROPS trustees to report to HMRC and crucially, the QROPS then becomes governed by the rules and taxes of the jurisdiction in which they are.

In the case of New Zealand rules, a lump sum can be taken and there is no tax deducted for non-New Zealand residents. To be connected to someone to advise on NZ QROPS please email me.


Isle of Man (IOM) QROPS The Island Government in IOM (Tynwald) has changed the laws so that the Isle of Man can compete in the QROPS market. Income can now be paid gross, without the deduction of tax.

I still don’t recommend IOM. As I wrote during QROPS Week ( see September) the following is still true;

‘The Isle of Man is a stable place for financial planning because it is a low tax environment, has expertise in tax planning and is mainly served by UK trained advisers, lawyers and accountants.

For Spanish residents and people planning to live in Spain, the Isle of Man is not a good place for your QROPS. The Isle of Man does not have a Double Taxation Treaty (DTA) with Spain.’

If you are reading this from a country that has a DTA with IOM then I would recommend it,. Please email me if you need clarification.


Malta has three distinct advantages when dealing with British and Irish clients, especially those who become residents in Spain.

  • Malta is an English speaking country
  • A low cost economy
  • A member of the European Union

After many months of negotiations, Malta as an established Financial Services Centre was given approval by HMRC to offer QROPS in November 2009. Individual trustees then need to get approval from the Malta Financial Services Authority (MFSA). It was not until February 2010 that the first QROPS were approved.

In my opinion, Malta will become a major centre for QROPS in the future. At present there are not many schemes available. My sources tell me that the MFSA requires lots of detailed information before approving any scheme. That is very good news, especially if it gives investor protection.

In the long term it is possible that Malta could even rank alongside Guernsey as a QROPS jurisdiction. However at present the shortage of choice means that good knowledgeable and regulated advice is needed. I can recommend an adviser if you email me.







Comparing features

Features
Guernsey
New Zealand
Isle of Man
Malta





Has Double Taxation Agreement with Spain?
Yes
Yes
No
Yes
100% cash equivalent available?
No
Yes, after 5 full UK tax years as non-resident
No
No
Income paid Gross?
Yes
Yes, return of capital
Yes, but only recently changed
Yes



Advice

Many advisers will compare all jurisdictions before making a recommendation. The determining of your priorities should be the overriding reason for recommending a particular QROPS. Some advisers only deal with one provider in one jurisdiction. If you’ve received a recommendation and would like a second opinion please email me.

The benefits of a second opinion were set out in an earlier article http://expatsfrombritain.blogspot.com/2010/10/your-chance-for-second-opinion.html