QROPS rules on a pension scheme member enjoying the use of residential property owned by the scheme can lead to the taxman setting fines and penalties of up to 55% of the value of the property.
Many QROPS consultants argue that anyone who is a QROPS scheme member can use their pension fund to buy residential property – and that the scheme rules allow them to live there permanently, or give rights to use the home for holidays if it is not their main residence.
HMRC guidance is unequivocal about this – the scheme member is not allowed direct or indirect use of taxable property held by a pension scheme.
This potential minefield for investing QROPS funds shows the importance of dealing with an independent financial firm that is regulated in the UK.
Under the taxable property rules:
Direct use is living in a home paid for by funds from a QROPS pension.
Indirect use is when the scheme member borrows money from a QROPS pension to spend on a home for him or herself.
Taxable property also covers more assets other than a home – for instance holiday homes, timeshares, classic cars, boats, yachts, art, antiques, aircraft, helicopters and fine wines would all fall under the same category.
Some financial firms point out that HM Revenue and Customs guidance for inspectors does not have any force in law, but the penalties for failing to comply with the in-house manuals can result in hefty fines and surcharges.
Flouting taxable property guidance can lead to an unauthorised payment charge of 40% of the asset value plus a 15% surcharge, while the scheme administrator also face a 40% surcharge as well.
The scheme administrator may also be liable to a capital gains tax charge on disposal of the asset as well.
The scheme administrator is also obliged to inform HMRC that an unauthorised payment has taken place, including the details of the person receiving the benefit and their address.
Many advisers suggest a work-round is that a QROPS scheme member should wait five years to invest in residential property to avoid the QROPS reporting requirement.
If you have a QROPS scheme or are considering transferring a UK pension fund to a QROPS, contact us today to find our how we can help you.