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Transferring your UK Pension - a warning

Transferring your UK Pension - a warning

Old Oct 13th 2009, 10:08 pm
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Default Transferring your UK Pension - a warning

I thought I'd post an e-mail chain I have going with a "pensions advisor" who specializes in transferring UK pensions to the US as a cash lump sum.

Fell free to pitch in with your opinions, I'm still trying to learn the ins and outs of this myself, but as you can tell from the last e-mail, I'm not so sure this company is either legitimate or entirely professional.

The e-mail chain is lengthy but worth reading as it affects us all - please feel free to pitch in - I'd like your opinion.

PS - names changed to protect the guilty

==========================================

Bob

Another question as I work through this - I see a lot of information regarding the need for a QROPS provider to provide the UK Revenue with continual returns for the first 5 years of a new plan - any attempt to withdraw leads to them hitting you with a tax bill - after 5 years you're in the clear at least for reporting.

How does the immediate payout scheme avoid any tax liability?


Thanks

John

======================

Hi John

The QROPS transfers the fund internally to a non-QROPS scheme
before the distribution to avoid the reporting requirement. The QROPS will not report anything to HMRC.

The theory and reality of QROPS transfers are very different!

Regards

======================

Bob

I'm no expert but here's how I read it......

....the fact that the initial transfer was to a QROPS scheme immediately renders it liable to the 5 year reporting requirement. This then means that they (the QROPS provider) have to advise HMRC that the money has been transferred out of the approved fund.

Here's where I agree that the legislation is poorly worded.

It appears to state that if you have lived overseas for more than 5 years you are ok to do as you wish, but there is a parallel 5 year reporting requirement for the QROPS provider. Some people are using the 5 year non-residency factor as the controlling rule others are using the 5 year QROPS rule as the controlling factor.

If the ambiguity was to be decided in favor of the 5 year reporting requirement and not the 5 year non-residency requirement I (and all your other clients) would be saddled with a tax bill amounting to as much as 55% of the total transfer value..

If you're relying on the fact that for some reason the QROPS avoids the reporting requirement, that only means that you're avoiding payment of the tax, not that tax isn't due - i.e. tax evasion.

See my concern?

All this is confirmed here:

http://www.expats.org.uk/features/spectrumifa02.html

Regards

John

=========================

Hi John

I understand your concern but rather than take advice from a guy in Spain who sells SIPPs and has a vested interest in deterring you from QROPS, you should read from the HMRC website attached and below. There is no ambiguity, only his slanted opinion:

Q. Can you confirm that QROPS reporting ceases after a UK individual has been absent from the UK for more than 5 full years?


A. Under regulation 3(3) of SI 2006/208 a QROPS will not have to report to HMRC a payment (or a deemed payment) if the member is not tax resident
in the UK when the payment is made and has neither been UK resident in that
tax year nor in any of the previous five tax years. But a QROPS will need
to check on the position when a payment is made as the member could have
become UK resident again after a period of non-residence.


Regards

=============================

Hi Bob

Is the 5 year non-residency requirement something that you address before processing a lump sum payment - I don't remember us discussing it before.

Have you processed lump sum payments for people with less than 5 years overseas and have there been any consequences?

Regards

=============================

Hi John

The QROPS have a standard form they use where you self declare the date you left the UK. It is one of the documents we send you along with the transfer forms.

Yes, we have processed many lump sum payments for people who left the UK less than 5 years ago. No letters from HMRC, no inquiries, nothing. Some payments go back to 2006, well before my time. Think how many HMRC drones it would take to check more than 250,000 QROPS transfers a year.

=============================

Hi Bob

All good to know.

But here's the issues as I see them:

1. The 2006 legislation was specifically designed to stop people pulling money out of plans, so any scheme that does offer a "cash out" has to have a question mark over it.

2. Even if you are more than 5 years overseas, the QROPS reporting requirement may go away but your tax liability does not - unless you are 50 or older, and even then only 25% of the fund can be pulled.

3. The only way your clients could have avoided a tax bill from HMRC, especially those with less than 5 years out of country, is if the QROPS didn't report the disbursements, a strict condition of their eligibility to remain in the plan. Your clients may not have a tax bill, but they definitely owe a lot of money to HMRC.

So is that really the bottom line here, the cash-out scheme relies on a QROPS who doesn't report disbursements and the inherent inefficiencies of HMRC to avoid a huge tax bill?

Trust me, I'd like to make this happen, but the above sounds like a disaster waiting to happen.


Regards

===============================

John

Like most people who emigrated from the UK, I have no assets or ties to the UK so in the unlikely event that HMRC investigated my transfers the worst they could do is write a nasty letter to me. That's assuming they discovered I had cashed out and how would they ever find out? The QROPS is not going to tell them.

You're a big boy, you have to make your own decision.

================================

Last edited by Retseh; Oct 13th 2009 at 11:02 pm.
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Old Oct 13th 2009, 10:17 pm
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Default Re: Transferring your UK Pension - a warning

hi Retseh, your posts did not appear immediately because they contain links. I'll delete the other two posts.
The hmrc.gov link didn't copy correctly anyway; you might want to check your email and edit in the correct link.
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Old Oct 13th 2009, 11:01 pm
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Default Re: Transferring your UK Pension - a warning

Thanks, sorry about that.
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Old Oct 14th 2009, 12:03 pm
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Default Re: Transferring your UK Pension - a warning

This is a facinating subject but interpretations vary enormously. Some of these interpretations are commercial:
-most companies want to retain your Pension/QROPS funds under management.
-if receiving advice from a QROPS provider you will only get their offering.

It is also interesting on a Google search how many "advisers" give the impression of being in the UK and regulated. Many want to be associated with UK regulation and compliance but if things go wrong then caveat emptor. Can you imagine explaining a UK Pension, transferred to a foreign jurisdiction to a foreign Solicitor and Court! Check who is checking your adviser. Is there an ombudsman, is there a compensation scheme, is my hard earned wealth protected.

At present a non UK Pension tells HMRC in Nottingham it is a QROPS via a form APSS251. There are now well over 2000 authorised QROPS. Perhaps HMRC should charge for QROPS recognition as I know the team is very busy in HMRC Nottingham!

Follow the procedures in APSS251 and the rules relating to QROPS typically for individuals boil down to two categories which the QROPS provider will adhere to:

1. An agreement that 70% of funds will be used to provide a lifetime income and benefits are not payable before minimum retirement age.

OR

2. If there is a double taxation agreement in force that contains provisions as to exchange of information and non-discrimination then the QROPS can adopt the rules of that country’s Pension or Superannuation legislation.

In many cases the second affording greater flexibility and certainly the only route to cash in a Pension fund if possible.

The five year reporting to HMRC via form APSS253 of any capital and income payments that all QROPS adhere to relates to non UK residency and not the number of years you have a QROPS. This is derived from the Finance Act 2004. In effect for that initial 5 years you largely can't do anything that would not be allowable via a UK domicile Pension.

Great care needs to be taken if cashing in after 5 years non UK residence (6th April to 5th April). There are perfectly legitamate QROPS that will allow this but only under the second basis above.

If you are cashing in and don't declare that capital (tax avoidance) I am sure the UK tax authorities will, under the exchange of information rules, request information at a later stage (note: no time limits). Even though under the UK Finance Act 2004 there may be no provision to tax under UK rules this information will be passed on to the jurisdiction in which you are then resident.

Perhaps not an issue if you live in UAE, Monaco or other tax neutral country but many other countries especially Europe and USA will not only look for tax revenues but also likely to fine you for non disclosure and late payment.

There are perfectly legitimate Global QROPS able to facilitate most peoples wishes but if you are being advised to do something that can't be backed up with HMRC and Finance Act 2004 legislation then be very careful.

If you are not using a UK authorised and regulated firm .... well enough said!

Hope this helps and a last word to be 100% sure from the UK to expats - if it's not evidenced in writing then it did not happen.
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Old Oct 14th 2009, 12:11 pm
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Default Re: Transferring your UK Pension - a warning

I can't help feeling that this is a question/answer spam thread. Do the two new members asking and answering this question happen to share an IP address?
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Old Oct 14th 2009, 12:26 pm
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Default Re: Transferring your UK Pension - a warning

Re: Transferring your UK Pension - a warning

--------------------------------------------------------------------------------

I can't help feeling that this is a question/answer spam thread. Do the two new members asking and answering this question happen to share an IP address?
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Sorry to disappoint. No links. I'm an interested party who is fed up with misinformation on this subject.
No offence taken.
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Old Oct 14th 2009, 3:01 pm
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Default Re: Transferring your UK Pension - a warning

Originally Posted by dbj1000 View Post
I can't help feeling that this is a question/answer spam thread. Do the two new members asking and answering this question happen to share an IP address?
Sorry to disappoint, no conspiracy here, I currently have the transfer paperwork on my desk in front of me and I'm trying to decide what to do.

Back to the "scheme".

In a nutshell, this company is offering to transfer my UK pension to a European pension (I'm in the US) provider who is also a QROPS member. They immediately cash it out and transfer the money to me, charging a hefty premium along the way, it's a sliding scale but on 100,000 pounds you're looking at a fee of 12,000 pounds. Tax is zero, but that's the question, it isn't really zero.

Has anyone completed a QROPS transfer and then cashed out?
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Old Oct 14th 2009, 3:50 pm
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Default Re: Transferring your UK Pension - a warning

You have been able to cash in for many years. Some Irish Pension scheme QROPS for example allows 25% tax free cash and you can cash in the rest - the catch- that element is then taxable. These are normal Irish Pension rules.

Southern Hemisphere QROPS may also be able to 'cash in' but both of the above - only after 5 years non UK residence. Sounds like the adviser can do it but the tax liability (tax avoidance) is your issue. Interestingly under UK rules this would have to be reported to HMRC as a tax avoidance scheme.

Tough call - good luck.
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Old Oct 14th 2009, 4:09 pm
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Default Re: Transferring your UK Pension - a warning

Why the push for a particular agency? Why is the agency name even mentioned?

While advise is always appreciated, advertising, even indirectly, is not allowed on BE forums.

It is highly ironic that you both have 3 posts, both are only posting in this thread, and both are joined at the same time.

Based on circumstantial evidence such as the above, I am closing the thread.


Originally Posted by Interest only View Post
You have been able to cash in for many years. Some Irish Pension scheme QROPS for example allows 25% tax free cash and you can cash in the rest - the catch- that element is then taxable. These are normal Irish Pension rules.

Southern Hemisphere QROPS may also be able to 'cash in' but both of the above - only after 5 years non UK residence. Sounds like the adviser can do it but the tax liability (tax avoidance) is your issue. Interestingly under UK rules this would have to be reported to HMRC as a tax avoidance scheme.

Tough call - good luck.
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