QROPS Legislation

QROPS legislation only becomes a problem when pension investors try to manipulate the rules to gain some advantage that is not allowed by the taxman.

Taking out tax free cash and trying to include forbidden investments in a QROPS pension fund are the two main areas of conflict.

QROPS providers have to certify their scheme terms and conditions meet QROPS rules drawn up by HM Revenue and Customs.

This self-certification of compliance means the scheme is posted on the monthly QROPS list on the HMRC web site.

If a QROPS scheme is not listed, UK pension fund managers are not allowed to initiate any transfer.

The penalties for breaking the rules are harsh. The transferring fund and the QROPS investor face a 40% tax charge plus up to a further 15% of the fund value in fines for any breach.

These penalties are also imposed for unauthorised withdrawals like taking too much tax free cash or using the QROPS as a vehicle for forbidden investments.

Taking tax free cash from a QROPS

The tax free cash QROPS rules are simple – only 25% of the total fund value can be taken as tax free cash when the QROPS investor has reached normal retirement age.

Some variance is available – some QROPS schemes and jurisdictions might allow a bigger tax free cash withdrawal under certain circumstances, but the general rule is 25% is all that is allowed.

Some QROPS providers and advisers have tried workarounds to gain more than a 25% tax free lump sum, like collapsing the underlying trust framework of a QROPS or transferring the funds on to another destination once they are in a QROPS, but HM Revenue and Customs has a policy of tightening up on QROPS schemes felt to be lax on applying the rules.

Residential property and QROPS

QROPS offshore pensions give a huge range of investment options in comparison to standard UK pension funds. QROPS also come in managed or self managed packages.

One of the main rules about investment is the QROPS scheme cannot directly or indirectly put money in to an asset that benefits the pension scheme member.

This includes residential property and luxuries like yachts, aircraft, helicopters, antiques and wine.

HMRC keeps track of QROPS fund compliance with the rules by requiring QROPS providers to report any unauthorised withdrawals that occur within the first five tax years of the date the offshore was started.

The best way of ensuring a QROPS pension transfer stays within the rules is taking advice from a regulated and experienced financial firm. QROPS.net can help locate the right adviser for anyone contemplating a QROPS transfer, just contact us to start the process.