On December 6, 2011, U.K.’s Her Majesty’s Revenue and Customs (HMRC) issued draft regulations that will affect the transfer of U.K. pensions to a foreign arrangement.

Since 2006, the U.K. has allowed individuals to transfer their private U.K. pension arrangement to a foreign pension scheme, provided that the foreign scheme provides broadly similar benefits to that available in the U.K. Those foreign pension schemes that met certain conditions and undertook to provide information to HMRC were known as Qualifying Recognised Overseas Pension Schemes (QROPS).

By allowing a tax free transfer to QROPS, the U.K. Government endeavors to provide individuals who are permanently leaving the U.K. with an option to simplify their affairs and take their pension with them to their new country of residence.

Since 2006, the U.K. Government has been continually trying to deal with many QROPS that are being marketed as a method of paying amounts that are not allowable in the U.K. For example, there are many QROPS advertising that 100 per cent of the fund may be taken as a lump sum.

The new draft regulations are intended to make sure that QROPS meet HMRC conditions and include:

• Acknowledgement by the individual, to be completed before a transfer is made, that tax charges may apply;
• Additional powers to HMRC to request information from a scheme manager of a QROPS;
• Increasing the time limit to 10 years for the reporting of payments by a QROPS to HMRC.

The consultation period for the draft regulations ends January 31, 2012, and the new rules are intended to be effective April 2012.

There are several considerations to take into account when looking at your own circumstances and deciding how best to deal with your U.K. private pension. The first step is to fully investigate the benefits that your U.K. arrangement provides. Your plan will either be a defined benefit arrangement providing a specific pension benefit, or it may be a defined contribution plan with a pension fund providing the benefits at retirement.

To further complicate matters, U.K. pension rules changed in April 2011. Most British expats in Canada would prefer their pension to be paid in Canadian dollars and be free from additional currency risk. However, it is very important to thoroughly examine each of your options and consult your tax advisor to determine the best course of action for your personal circumstances. There is no one solution; individual circumstances and financial objectives vary greatly.

The information contained here is for general information purposes only and is not intended to provide financial, legal, accounting or tax advice and should not be relied upon in that regard. Many factors unknown may affect the applicability to your particular circumstances. You should consult directly with your professional advisors before acting on any matter discussed herein.