Guernsey braced for QROPS hammer-blow tomorrow

Since 2006 QROPS (qualifying recognised overseas pension schemes) have been big business for offshore jurisdictions because HMRC permitted any non UK resident to transfer their UK pension fund to a QROPS in an overseas location and thereby avoid the compulsion to purchase an annuity by the age of 75.  This could avoid a potential UK tax charge of up to 82 percent upon death, and was free of UK inheritance tax.

Whilst some QROPS require you to be resident in the jurisdiction to which you wish to transfer your benefits, others such as those established in Guernsey have no such restriction, allowing expats to choose a tax friendly regime to suit their personal circumstances.  This led to Guernsey becoming a leading offshore provider of the schemes.

But is seems that HMRC are not happy with the way in which QROPS have been used as an inheritance tax planning tool, rather than a genuine means of providing a retirement income, and in recent months they have been changing the rules to try and prevent the schemes being used for tax avoidance purposes. 

Emergency adjustments to Guernsey’s system were made earlier this year after a UK warning that if a jurisdiction offered tax advantages that were not intended to be available under QROPS rules, it would exclude them from registration.  It was hoped by the Island that this would satisfy HMRC but now the Island fears a further attack as HMRC has indicated that it is set to change its regulations again in order to prevent a significant proportion of Guernsey’s pension schemes being recognized as QROPS.

HMRC has confirmed that when it republishes its list of approved QROPS on Thursday 12 April 2012 it will only include a Guernsey scheme if it is for ‘Guernsey residents only’.  It is not clear at this stage whether other offshore jurisdictions such as Jersey and the Isle of Man will be equally negatively impacted by the changes, although it is understood that New Zealand has also been specifically targeted.


In addition, HMRC has indicated that it is set to further change its regulations in order to disqualify Guernsey’s new s157E pension schemes from being recognized as QROPS.  These had been introduced specifically as an attempt to meet the last raft of requirements introduced by HMRC.
This will be a massive blow for the Island, where 200 jobs are estimated to depend on the QROPS market, and comes soon after the Island has lost its fulfillment industry following withdrawal of low value consignment relief from the Channel Islands. 


The only silver lining in sight is that the changes to the QROPS rules will not be retrospective, so that those who have already established their QROPS in Guernsey will be permitted to keep them there, and to benefit from the tax advantages.