What is a QROPS? Is a popular questions raised by expats.
The answer is sometimes confusing because tax law and financial advisers wrap the definitions in jargon.
The April 2012 QROPS rules say an offshore pension has to pass four tests to qualify as a QROPS by being:
- A pension scheme
- An overseas pension scheme as defined by QROPS rules
- A recognised overseas pension scheme
- A qualifying recognised overseas pension scheme – the full name for a QROPS
These are not ‘either…or’ tests – the scheme has to pass all four to qualify as a QROPS.
A pension should offer benefits for retirement, ill-health, death or similar circumstances. If not, it’s unlikely to be a pension so won’t be a QROPS.
Overseas to meet the second rule means based outside the UK. The location of the QROPS’ registered office is generally the same place as the offshore centre where the pension is deemed based. If the QROPS has no registered office, the main administration centre is the headquarters.
A recognised pension is a scheme that meets the tax rules of the country where the QROPS is based – so, for example, a Guernsey QROPS has to abide by Guernsey tax rules.
A qualifying scheme is one that is open to residents and non-residents of the country where the QROPS is based and the members pay the same rate of income tax regardless of if they live in that country or elsewhere.
One point to watch with a QROPS is that passing the four tests does not give the scheme the same tax exemptions as a registered pension in the UK.
This specifically affects income from property, corporation tax or capital gains on unauthorised unit trusts.
Another question to tidy up for expats is firms marketing a QROPS as having ‘approved’ status. HMRC does not approve a QROPS. The providers self-certify their schemes meet the rules and HMRC publishes a list of schemes that have given notice they meet the four tests.
The list is published monthly or so and is available from the HMRC web site.
The list was suspended on April 6, 2012 – any list published before that date includes schemes operating under the old rules that may now fail to qualify.