UK Budget: QROPS, non-dorms, avoidance

8 March 17, the UK government announced a 25% overseas transfer charge on certain transfers from a UK-registered pension scheme to a qualifying recognised overseas pension scheme (QROPS) and transfers of UK tax-relieved funds to a QROPS made on or after 9 March.

The charge will not apply where the member is resident in the same country as the country in which the QROPS receiving the transfer payment is established or the member is resident in within the European Economic Area (EEA) and the QROPS is established in a country within the EEA.

If the charge is not payable on the original transfer, it can become payable if the member the member ceases to be resident in the same country in which the receiving scheme is established within five full tax years of the transfer. Likewise, the tax charge can be reclaimed if it was paid on the original transfer, but the member’s circumstances change within five full tax years.

The charge will also not apply if the QROPS is: set up by an international organisation for the purpose of providing benefits for or in respect of past service as an employee of the organisation and the member is an employee of that international organisation; an overseas public service pension scheme and the member is an employee of an employer that participates in the scheme; and the QROPS is an occupational pension scheme and the member is an employee of a sponsoring employee under the scheme.

Members will be jointly and severally liable for the charge with the scheme administrator, and reportable in the member’s self-assessment tax return. QROPS accepting such transfers will need to update their undertakings to HMRC by 13 April 2017 if they wish to continue to be a QROPS.

In future 100% of a foreign pension or lump sum paid to a UK-resident individual will be taxable to the same extent as if it was paid by a registered pension scheme. Temporary non-residence rules will also impose tax charges on foreign pensions received by individuals resident outside the UK for less than 10 tax years.

The Budget contained two minor amendments to the changes to the taxation of non-doms, which were first announced by George Osborne in 2015. From 6 April 2017. If the value of a shareholding in a non-UK company that is attributable to underlying UK residential property is less than 5% – it was previously 1% – of the total value of the company, the new rules bringing such companies within the scope of IHT will not apply.

In the two tax years following 6 April 2017 non-doms will have an opportunity to segregate any offshore cash funds that currently represent a mixture of capital, income and gains into these component parts. Previously this was only to apply to mixed funds containing income and capital gains arising after 6 April 2008.

Chancellor Phillip Hammond said £140 billion had been raised in tackling tax avoidance, evasion and non-compliance since 2010. He reaffirmed the government’s commitment to introducing penalties for “enablers” of tax avoidance schemes that are later defeated by HMRC, which will come into force in July 2017. The taxpayers’ “reasonable care” defence of having relied on non-independent professional advice will also be removed. He further announced new rules to prevent promoters of tax avoidance schemes circumventing disclosure rules by reorganising their businesses – either by sharing control of a promoting business or putting a person or persons between themselves and the promoting business.

Following a review by the Public Accounts Committee, HMRC is to issue guidance to employers that make payments for “image rights” under separate contractual arrangements to employment income to improve the clarity of the existing rules.