Budget revolution hits Qrops with income overhaul
The Budget pensions overhaul has hit the overseas pension market as new rules have been proposed which would remove the requirement for qualifying recognised overseas pension schemes (Qrops) to provide an income in retirement.
Current rules around Qrops require that 70% of the amount transferred from a UK scheme has to be used for the purpose of providing a member with an income in retirement.
Draft legislation published earlier in December sets out plans to remove that requirement, bringing Qrops in line with the incoming pension freedoms that will allow all savers to withdraw their pension at their marginal rate of tax rather than necessarily buy an annuity.
Removing the 70% rule means Qrops members could potentially withdraw 100% of their pension as a lump sum.
The ‘70% rule’ has been replaced with a new requirement that the manager of a Qrops must be regulated by a body, in the jurisdiction where the Qrops has been established, which regulates the management or provision of such services – i.e. pension benefits.
The taxation of withdrawals will depend on whether the country the Qrops is based in has a tax treaty with the UK.
If the Qrops jurisdiction does not have a double taxation agreement (DTA) with the UK, the member would be liable to UK income tax on withdrawals at their marginal rate. If it does have a DTA then they will pay the local rate of tax that could be lower than the UK.
