One of the big attractions for expats investing in a QROPS offshore pension is that their fund manager does not have to report any payments or transfers after the scheme member has been absent from the UK for five tax years.
Lots of advisors fail to explain these rules clearly.
Actually, QROPS Provider have open-ended responsibilities to report certain transactions after the five-tax-year period.
This means that scheme members who break QROPS rules can be subject to an unauthorised withdrawal charge from their fund – and the penalties are 40% tax on the withdrawal plus the taxman can impose up to a 15% surcharge as well.
No time limit on QROPS reporting
The two main problem areas for QROPS unauthorised withdrawals are:
- Transferring QROPS assets to another investment vehicle or trying to drawdown the whole fund as cash
- Investing in ‘taxable property’ after the five tax years are completed
Under either of these circumstances, the QROPS manager is obliged to report an unauthorised withdrawal to HMRC after the five-year period – and HMRC has placed no time limits on the reporting period.
These rules have come about because scheme members try and flout the QROPS investment rules by cashing in their scheme without paying any tax on the pension fund or try to buy assets with QROPS funds for their own benefit.
Investments that cause QROPS problems
Many QROPS investors do not realise that if they try to transfer QROPS fund on to another investment scheme, the fund manager can only agree to put the pension funds in another QROPS and must inform HMRC of the transfer.
This property would include any residential property, timeshare or fractional ownership investment that the scheme member was allowed to use.
Other investments that the scheme member may benefit from would be art, antiques, fine wines, classic cars or a yacht. This is not an exhaustive list but example of the most common investments that give a benefit to the pension holder.
