Understanding refinancing. What questions to ask and what to know.
There have been changes drafted with regards to Qualifying Recognised Overseas Pension Schemes (QROPS) that will affect UK residents. In a measure to more closely align the United Kingdom tax treatment of payments out of Qualifying Recognised Overseas Pension Schemes (QROPS) with the UK’s domestic tax regime, a number of changes to the UK’s foreign pension tax regime have been proposed in the draft Finance Bill 2017 published on 5 December 2016, which will be effective on or after 6 April 2017. The changes to treatment of QROPS include:
- income from foreign pension schemes, commonly referred to as Qualifying Recognised Overseas Pension Schemes (QROPS) being taxed in the same away as a UK pension for members how are resident in the UK (i.e. 100% as opposed to the current 90%);
- ceasing the ability for UK employers to establish retirement funds, referred to as section 615 schemes, for employees working outside of the UK. Where existing section 615 schemes and those established prior to 5 April 2017 meet certain conditions (including ceasing to accept contributions), the existing beneficial treatment may still apply;
- the extension of the current 5 year threshold on HMRC imposing tax on payments made from a pension scheme based outside of the UK which holds UK tax relief amounts to 10 years;
- aligning the tax treatment of funds transferred between registered pension schemes; and
- updating the eligibility criteria for foreign schemes to qualify as overseas pensions schemes for tax purposes.
Who’s affected? Those individuals with pension funds located outside of the UK who are resident in the UK or planning on becoming resident in the UK will be impacted by these new changes. If you believe you may be affected by these changes, please consult your tax professional for further advice.