Pension providers in Gibraltar and HM Revenue and Customs are arguing about nothing – or whether a zero rate income tax is really a tax.
The technicality is causing a huge uproar in the offshore pensions sector and stopping transfers from UK pensions in to Gibraltar schemes as the firms have voluntarily put a stop on cash switches until the matter is sorted.
Both sides could easily put an end to the matter by agreeing to disagree and saving face – either by Gibraltar changing their tax stance or HMRC accepting a zero rate is still a tax.
After all, HMRC imposes a zero rate VAT tax in the UK – but the taxman obviously fears ruling in favour of Gibraltar will lead to other infringements of their QROPS rules.
Rather than report the hype, here are the facts behind the row:
At the root of the row is money. Pension providers in Gibraltar want to set themselves up as a rival financial centre to Guernsey and the Isle of Man by attracting fund transfers from people with UK pension rights.
People who can transfer their funds include British expats living permanently abroad and foreign workers who have built UK pension rights but live abroad.
The attractions of a QROPS for these groups are the pension scheme has tax advantages and other benefits that are not allowed for UK pensions.
People in these groups can transfer their pension funds in to a QROPS – a Qualifying Recognised Offshore Pension Scheme – providing the scheme meets some special rules.
These rules include one stating that a QROPS pension must be recognised for tax – which means them benefits should be liable to tax.
The QROPS in Gibraltar are subject to a 0% income tax rate for the over 60s.
- HMRC claims this means the Gibraltar QROPS flout the rules because they are not subject to tax because of the 0% rate.
- The Gibraltar pension providers claim their QROPS benefits are taxed but ay a zero rate.
Both sides have spent six months writing letters to each other arguing their point without making any process.
Now, the Gibraltar pension firms are piling the pressure on HMRC by threatening legal action if the taxman pulls the plug on QROPS transfers.
A decision is expected from HMRC by the end of the month.
