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Are QROPS at Risk from HMRC Crackdown?

When HMRC allowed the introduction of qualifying recognised overseas pension schemes (QROPS) back in 2006, many international financial advisers and solutions providers couldn’t believe their luck.  Here was the British taxman effectively handing their clients tax efficiency and confidentiality for pensions on a plate.

However, it wasn’t a case of the taxman suddenly losing the plot and letting go his rein on the utilisation of pension benefits; rather QROPS were an essential solution to the EU’s rules that require all citizens to have freedom of movement of capital.  Since the introduction of QROPS however, there have been those who have sought to exploit the rules to gain greater financial/taxation benefit than is legitimately allowable, and as a result they have brought the full weight of HMRC’s attention to bear on this section of the financial marketplace.

HMRC has so far acted extremely swiftly and decisively to close exploited loopholes – clearly showing their hand to those who continue to seek greater gain and advantage from QROPS than are legitimately allowable.  But are genuine QROPS schemes now at risk from this HMRC crackdown?  We look at the facts and industry feedback to determine the future for qualifying recognised overseas pension schemes.

According to an article in Interntional-Adviser.com, the number of QROPS transfers fell in 2009 – 2010 compared to the previous twelve months.  The figures for transfers according to data from HMRC as sourced by QROPS providers AJ Bell show that 5,659 transfers were made between 2009 and 2010, compared to over 6,000 in the previous twelve months.

This slowdown contrasts directly with industry sentiment about the future path for QROPS, with 96% of financial advisers surveyed by Skandia International stating that they are confident of writing the same or greater levels of QROPS business over the next twelve months.

The surveyed advisers, together with a spokesman from Skandia agreed that greater promotion of QROPS has resulted in greater awareness of the schemes; as a result the industry confidence that business volumes will continue is based largely on this fact.  It also appears that most advisers who operate legitimately and who do not seek out loopholes to exploit believe that the legitimate advantages and benefits of QROPS are sufficient to ensure strong levels of interest from clients.

Because the right to allow citizens the free transfer of capital exists in the EU, QROPS are unlikely to disappear just because some schemes have been set up and abused in jurisdictions such as Hong Kong for example.  This bodes well for advisers who have clients who can genuinely benefit from transferring their private pensions offshore.

In other words, where HMRC has cracked down it has only done so to close exploited loopholes – it has not targeted legitimately utilised schemes.  Therefore, we at Expatra do not feel that QROPS as a financial solution are at risk.  However, the fact that QROPS transfers fell last year does sharply contrast with industry sentiment about future business volumes…so we will have to see whether the greater promotion of QROPS and their benefits and advantages will indeed see volumes remain strong going forward.

The fact that there is still such a strong exodus of Britons moving abroad to live, work and retire abroad means that there is a strong level of potential market demand for QROPS…but negative reporting about those who have abused QROPS serves to harm the reputation of these often very beneficial schemes.

Financial advisers and solutions providers are doing the industry no good in the long-term if they seek to exploit loopholes.  We hope that more focus is instead placed on providing best advice and service to expats, as well as those planning on retiring abroad, when it comes to advising about and providing solutions for their pension options and alternatives.

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