QROPS, HMRC lose out on £1million a day

HMRC lose out on £1million a day in missed tax revenue, thanks to the growing trend of British pension scheme members transferring their funds abroad.

Since Qualifying Registered Overseas Pension Schemes (QROPS) were permitted on A-day in 2006, 7,300 people have moved nearly £432million worth of pension assets abroad. The figures were obtained by A J Bell, a SIPPs provider, under a Freedom of Information Act request.

The main reason for moving your pension abroad is tax efficiency. Since the changes to the law relating to SIPPs and alternatively secured pensions (ASPs) in 2006, the government has choked ASPs with red tape and high tax bills – some scheme members had to pay a penalty of up to 82% of the value of their pension fund in 2007.

Andy Bell, the actuary who obtained these figures, said “the 82% tax was introduced in April 2007. After that, we saw the amount transferred to offshore QROPS plans increase by three-and-a-half times. “

But QROPS investors have not just benefited from lower tax rates. Depending on which country they choose to host their QROPS, scheme members can choose a range of structures for their pension vehicles, some of which permit investment in residential property. Many QROPS allow their members to take tax free lump sums of up to 25%. And perhaps most attractively, many QROPS have also broken free from the UK government’s insistence that members purchase an annuity by the age of 75.

It’s rumoured that the Conservative party intend to give investors more freedom about when, and even if they have to buy an annuity if they win the next election. With such a bleak programme of cuts being planned, continuing to lose £1million of tax revenue per day is unpalatable to any future government.

But lifetime tax breaks and investor freedom are only half the story behind the success of QROPS. With a punitive UK inheritance tax rate of 82% due on what’s left in an ASP after the member has died, is it any wonder that investors are looking abroad?

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Jonathan Cassidy

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Offshore Financial Marketing

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