Frequently Asked Questions

General

International

General

Q. I have taken all my main scheme benefits before A-day including a tax-free lump sum retirement benefit and deferred my AVC’s. Can I take another lump sum after A-day?

A. If no benefits have been drawn under the AVC arrangement prior to A-day, when they are taken on or after A Day a tax -free pension commencement lump sum may be taken subject to the rules of that arrangement.

Q. For a short service refund lump sum, what happens when there are protected rights?

A. To qualify for a short service refund lump sum you must extinguish all rights to benefits under that scheme, see RPSM 09104720.

Q. I’m an IFA with a particular client/s in mind. Can the Helpline tell me the best way forward for my client/s?

A. HMRC cannot give tax planning advice, the tax consequences of any actions relating to registered pension schemes are set out in the legislation and the Registered Pension Schemes Manual.

Q. I’m self-employed and never know the amount of my income until after the end of the tax year. Can I maximise pension contributions using carry-back under pensions simplification? If not why not?

A. There is no carry-back for contributions paid from 6th April 2006. After this date you will be able to contribute what you want, when you want to a registered pension scheme and get tax relief on those contributions up to 100% of your relevant earnings. If you have no earnings in a year, or earnings are less than £3,600, you will be able to pay contributions with relief up to that amount.
If you do not know what your income will be in a tax year, pension contributions can be paid in based on estimated earnings. With the maximum fixed at 100% most can contribute as much as they wish and get tax relief without needing to first establish exact earnings amounts.

Q. If I pay more than my earnings into my scheme can I get my excess contributions back?

A. If in any tax year an overpayment is made that is in excess of the 100%/£3600 limit there is a facility for the excess to be repayable to the member at any time during the following six years with the scheme's agreement. Regardless of whether you intend to reclaim the excess you must tell the scheme administrator whenever you become aware that a claim for relief at source has to be adjusted because there is now established to be an excess contribution.

Q. When will I be able to apply for Primary or Enhanced Protection?

A. You have three years from 6th April 06 to notify HMRC that you wish to register your entitlement for Primary or Enhanced Protection. You cannot do this before this date as your notification must include a valuation of your pension fund at 5th April 06. Here is a link to the Protection forms and completion notes

Q. Are HMRC going to provide model rules?

A. No. From A-day HMRC will not be issuing model rules as it does now. It will be up to schemes to design their own rules.

Q. I have an approved scheme, how do I get my Pension Scheme Tax Reference?

A. See Newsletter No 8 article 3 b for full details

Q. We are a large company with many different clients, will we need or can we have more than one Practitioner ID?

A. You may pre-register for Pension Schemes Online as many times as you wish if it helps to have more than one Practitioner. If a Scheme Administrator has authorised HMRC to deal with more than one practitioner, then we will contact the first named practitioner as it will not be possible through the authorisation process to say who is dealing with what. Therefore some practitioners might want to consider applying for a practitioner ID for each function they are likely to have responsibility for so that it is possible to identify from the ID used who we should contact on particular matters.

For example, J Bloggs Pensions Ltd are practitioners to a number of schemes and have pre-registered for Pension Schemes Online and received a Practitioner ID. But they also act as practitioner to a number of schemes in relation to the Event Report only. They could pre-register for Pension Schemes Online to obtain a Practitioner ID in the name of "J Bloggs Pensions Ltd – Event Reports" and give this ID to the Scheme Administrators to use when they complete the authorisation process. HMRC will then communicate with the Practitioner linked to that ID if they have a query about the Event Report.

Q A SIPP had acquired a property - for example "off-plan" - with the intention of holding it as an investment. As a result of the latest PBR announcements, the decision was taken to dispose of that property. Would HMRC regard such a disposal as "trading"?

A Each situation must of course be decided on its own particular facts and general guidance regarding the approach to be taken in determining whether a transaction is to be regarded as trading or investment can be found at BIM 60000 - 60500

But if the asset was acquired with the intention to hold as an investment (BIM 60030) and was disposed of following the PBR announcement, unless there has been a change of intention (of the type discussed in BIM 60060) normally resulting in some form of physical change to the asset, this transaction is unlikely to be regarded as a trading one.

In the case of "off plan", the fact that it was in the process of being developed at the time of the PBR, in accordance with the contract originally entered into between the developer and the SIPP, would not make it a trading transaction for the SIPP where the development continues.

It should be remembered however, that the Technical note issued at the time of the PBR made it clear that : "If investment was made before midnight on PBR day and the offplan investment does not become residential property after PBR day, it will be protected."

International

Pensions Simplification - Overseas Transfers from A-Day

QROPS Notifications

Q. When will the application forms for QROPS notifications be available?

A. The form APSS 251 that can be used by a scheme manager to give Audit and Pension Schemes Services (APSS) a QROPS notification is available here and the notes to help you complete the form are here

Q. Has HMRC already developed a checklist and process for overseas scheme administrators to apply for QROPS status?

A. A scheme manager can obtain QROPS status by sending form APSS 251 to APSS. The form is designed to make the scheme manager go through the requirements that have to be met when filling it in.

Q. What action will APSS take on receipt of a QROPS notification?

A. In response to a QROPS notification APSS will send the scheme manager a letter of acceptance that the scheme is a QROPS. The letter will show the unique QROPS reference number for that scheme. Details of the QROPS will be entered on the APSS database. APSS can ask the scheme manager for more evidence before issuing a letter of acceptance (or rejection).

Q. How long will it take to process a QROPS application?

A. We aim to turnaround 91% of all scheme registrations within 15 working days and the remainder within a further 25 working days. However we may have to amend these timings if volumes of all new forms coming into APSS post A-Day are greater than we expect.

Pipeline Cases

Q. Will there be grandfathering provisions for people to complete transfers after 6th April before the new regime starts, or is the 6th April cut off to hold in all cases?

A. All transfers made after 5 April 2006 will be subject to the new regime rules and tax charges.

Q. What would the position be if a cheque was received by the QROPS scheme manager on or after 6 April 2006 but before the overseas scheme received its QROPS status?

A. A UK scheme should not issue a cheque after 5 April 2006 until it is satisfied that the overseas scheme to which a member wants to transfer his/her rights has submitted a QROPS notification to HMRC and that it has been accepted. If the overseas scheme has not been accepted as a QROPS at the time the transfer is made, then there would be an unauthorised payments charge (and surcharge) on the individual and a scheme sanction charge on the UK scheme

A UK scheme administrator may therefore take the precaution of asking the overseas scheme manager for a copy of its APSS acceptance letter before issuing a cheque. A UK scheme administrator will also be able to write to APSS to check whether or not a scheme is on its QROPS database.

Overseas Transfer Requirements

Q. Will any of the criteria set out in Appendix VI of IR 12 and Appendix 22 of IR 76 still apply in the post A-Day regime?

A. No. PN Appendix VI and Appendix 22 of IR76 will not apply to transfers made after 5 April 2006 so those requirements will no longer be relevant.

Q. What requirements must be met from A-Day in respect of overseas transfers given that the current requirements will become obsolete?

A. A transfer to an overseas scheme will be a "recognised transfer", and therefore not give rise to an unauthorised payments charge, if the scheme is a QROPS. The requirements to be met for a scheme to be a QROPS are provided for in section 169 of the Finance Act 2004 and in Statutory Instruments 2006/206 and 2006/208. There is guidance on those requirements in Chapter 14 of the Registered Pension Schemes Manual (RPSM) which can be found on the HMRC Website.

Q. Once a scheme is accepted as a QROPS will that be held centrally for UK providers to look and check that for example the New Zealand scheme has QROPS status - i.e. will it be held on an HMRC Website?

A. APSS will have a QROPS database. This will not be put on the HMRC Website, but UK scheme administrators and members considering a transfer to an overseas scheme will be able to write to APSS to check whether or not the scheme is on the QROPS database.

Q. Can you confirm the implications when a QROPS ceases to have QROPS status but still holds a UK pension benefit for a member

A. The scheme would lose its right to receive further transfers from UK registered pension schemes.

Q. What checks will a UK Scheme Administrator have to make to ensure that the transfer is an “authorised transfer” to a QROPS?

A. A UK Scheme Administrator will need to be satisfied that an overseas transfer is to be made to a QROPS. The Scheme Administrator can check with APSS that the scheme is on the QROPS database.

Q. What is the position regarding overseas transfers in respect of contracted-out rights post A-Day?

A. Transfers to overseas pension schemes of protected rights and of a Guaranteed Minimum Pension will be subject to the same HMRC requirements as overseas transfers of other pension rights. But transfers of such rights will also have to meet DWP requirements, and those concerned will need to check with DWP.

Q. For those with total balances from all funds of less than £5,000 at Year End, can the QROPS regulations be relaxed. This amount to be related to a UK cost of living index?

A. Section 169 of FA 2004 and the associated regulations apply to all transfers to a QROPS. There is no discretion allowed.

Q. Is there any special requirement for an Australian Super Fund to become a QROPS?

A. No.

Q. As a complying regulated Superannuation fund satisfies the requirements of an "overseas pension scheme" if its primary purpose is to pay pensions and as there exists a Double Taxation Agreement that contains exchange of information and non-discrimination provisions between Australia and United Kingdom, Article 23 and 27 of the 2003 UK Convention refers, would a transfer to such a fund qualify as a recognised transfer?

A. Yes, if the other QROPS requirements are met. The onus is on a scheme manager to satisfy himself that primary condition 2 in SI 2006/206 is met, but it is our understanding that an Australian complying regulated Superannuation fund will meet this condition. Australia does come within regulation 3(2)(c) in SI 2006/206.

Australian Self Managed Funds (similar to SSAS and SIPP)

Q. Is it correct that a SMF cannot be granted QROPS status as it is not open to the public and so doesn’t meet Primary Condition 1 of The Pension Schemes (Categories of Country and Requirements for Overseas Pension Schemes and Recognised Overseas Pension Schemes) Regulations 2006 (SI 2006/206)?

A. No, that would not prevent a SMF being a QROPS. Primary condition 1 will be met by a SMF provided it is open to residents of Australia i.e. it is not exclusively for non-residents.

Transfer of benefits in payment

Q. Will it be possibleto transfer a UK pension to Australia, where benefits are either providing unsecured Pension benefits or alternatively secured pension benefits (i.e. UK pension is in draw down). We note that UK pension annuity transfers would not be authorised outside EEA.

A. Yes, this would be a recognised transfer under section 169. But once the unsecured pension (UP) fund or alternatively secured pension (ASP) fund is transferred it will need to stay within the authorised payment rules. So they will need to stay within the FA 2004 maximum withdrawal limits and basis periods for USP/ASP funds. The regulations (SI 0499 of 2006) dealing with treatment of transfers of pensions in payment, including transfers of UP/ASP funds will also apply. The sums and assets transferred are treated as remaining under the same arrangement for UK tax purposes.

Where an individual is in receipt of an annuity, pension rule 4 in s165, paragraph 3(1) of schedule 28 and s275 mean that the annuity can only be transferred to an EEA insurance company. SI0499 of 2006 also covers transfers of lifetime annuities. Where a lifetime annuity is payable following the transfer it is treated as the same lifetime annuity for tax purposes.

Reporting by QROPS

Q. What reporting requirements will HMRC impose on overseas providers?

A. The requirements are specified in SI 2006/208. In order for an overseas scheme to be a QROPS the manager must have undertaken that on the making of a payment (or of a deemed payment) he/she will provide HMRC with the name and address of the member, and the date, amount and nature of the payment.

Q. Is there an amount that a client can withdraw which will not be subject to reporting to HMRC?

A. No.

Q. Is there a form for QROPS reporting ?

A. Yes, the form APSS 253 will be available later in the year on the HMRC Website . The Event Report (APSS 300) is not relevant for QROPS – it is a form for UK registered pension schemes. The information reporting requirements for registered pension schemes and for QROPS are different.

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.

Q. If the payment includes transferring funds to another Australian Super Fund, do we have to confirm that the receiving fund is also a QROPS?

A. No, but it would be surprising if the QROPS did not check that the receiving fund is a QROPS in order to know if the transfer would give rise to an unauthorised payments charge/surcharge on the individual.

Q. One of the requirements is for the Australian Super Fund to advise HMRC when the fund makes “a payment” to the member that transferred their UK pension into the Australian Super Fund. “A payment” includes the commencement of pension payments, a cash withdrawal or transferring the funds to another Australian Super Fund. How does HMRC envisage that this reporting is to be done (eg on-line system, hard copy forms etc)?

A. Form APSS 253 can be used to send reports of payments to APSS. It will not be possible to submit reports electronically.

Taxation Implications of Payments by a QROPS

Q. Is it correct to say UK money is deemed to be the first amount on a report from the QROPS to HMRC in order to extinguish any tax liability at its earliest? For example, a client has $ 200 in his Australian QROPS fund, made up of $100 resultant from a UK transfer and $ 100 resultant from an Australian contribution. He then transfers half of it (or $100) to a non-QROPS - is it deemed that this amount was all UK money on the report?

A. Yes.

Q. If a transfer is made from a registered pension scheme to a non QROPS is it treated as an unauthorised payment irrespective of how long the member has been non-UK resident?

A. Yes. An unauthorised payments charge would arise on the member and a scheme sanction charge would arise on the UK scheme if a transfer were made from a UK registered pension scheme to a non-QROPS whenever it was made. There would not be a charge on the overseas pension scheme.

Q. What is the timeline for access to funds once transferred where a potential penalty will not apply?

A. An individual whose UK tax-relieved rights have been transferred to a QROPS could be liable to an unauthorised payments charge unless when a payment is made to or in respect of the individual by the QROPS he/she is not resident for tax purposes in the UK and has neither been UK resident in that UK tax year nor in any of the previous five tax years.

Q. If a transfer was originally received by a QROPS and then subsequently transferred to a non-QROPS, what are the taxation implications ? Does the period that the member has been not resident in the UK have any impact?

A. The individual would be liable to an unauthorised payments charge unless when the subsequent transfer was made he/she was not resident for tax purposes in the UK and had neither been UK resident in that UK tax year nor in any of the previous five tax years.

Q. If a member draws benefits in Australia within first 5 years but draws 25% as Cash, with remaining fund invested but income withdrawals made in line with Australian rules, the rules state there would be no charge. If the member waits until after 5 years, would he be entitled to withdraw remaining fund with no charge as outside the 5-year rule?

A. If the 25% cash payment meets the conditions of being a pension commencement lump sum under schedule 29 to FA 2004 - one of which is that the member becomes entitled to it in connection with the member becoming entitled to a relevant pension - then it will not give rise to an unauthorised payments charge. If a subsequent cash payment is made when the member is not tax resident in the UK and has neither been UK resident in that UK tax year nor in any of the previous five tax years then it will not give rise to an unauthorised payments charge. And as before in the first 5/6 year period income withdrawals will also have to meet FA 2004 rules.

Q. What penalty/tax charge will be imposed for those taking withdrawals in the penalty period?

A. If an unauthorised payment is made then that will give rise to a 40% unauthorised payments charge and, possibly, to a 15% unauthorised payments surcharge.

Q. How will the client pay that 'penalty'?

A. By declaring the unauthorised payment, or other payment giving rise to a charge under schedule 34 to FA 2004, on a self-assessment return. That should be sent to the tax office that is dealing with their affairs or that was dealing with their affairs immediately before they left the UK.

Q. How do payments by QROPS affect the client’s tax liability in the UK?

A. A payment could give rise to a member payment charge under schedule 34 to FA 2004. In particular, the individual will be liable to an unauthorised payments charge if the payment would have been unauthorised had it been made from a UK registered pension scheme.

Q. How will the HMRC determine what portion of this payment relates to the UK transfer (eg client withdrawals $1,000 cash from a $500,000 super account that consists of a UK pension transfer of $100,000)?

A. Under schedule 34 to FA 2004 and SI 2006/207 a payment from a QROPS will be treated as coming first from the individual's UK tax-relieved fund (if any) and next from the individual's relevant transfer fund. So in the example the cash withdrawal will be treated as coming from the fund transferred from a UK scheme. There is guidance on the attribution of payments at RPSM13102190.

Q. What are the tax implications, if any, when a member dies within the first 5 years of being resident in Australia Could you confirm whether this tax charge (if any) would apply when retirement benefits are not in payment and when they are in payment in Australia (i.e. pre & post retirement). Will the QROPS need to confirm such an event to HMRC?

A. The QROPS will need to report any death benefit payments in respect of the deceased member. If the payments conform with the FA 2004 pension death benefit/lump sum death benefit rules there will be no unauthorised payments charge (surcharge); otherwise there will be.

Q. On transferred funds what is the upper age for immediate access - are we right in believing it to be 55 or is there a phased period from 50 currently to 55 in 2010? How will the changing ages of retirement affect transfers for someone who has transferred funds?

A. Generally, someone who has transferred their rights to an overseas scheme will have to take their benefits no earlier than the normal minimum pension age - age 50 up to 6 April 2010 and age 55 after that date - or they will be liable to an unauthorised payments charge. However, if the individual had a right under their UK scheme's rules on 10 December 2003 to a lower normal retirement age and their rights were transferred to a QROPS as part of a "block transfer" then they will be able to take benefits at that age without incurring such a charge. A "block transfer" is defined in the RPSM Glossary.

Guidance

Q. Under RPSM14101060 and RPSM14101070, there are a few references to RPSM131xxxxx – has this been updated yet for completeness?

A. Yes.

Q. Will HMRC issue any guidance documentation to Overseas Advisors or QROPS administrators?

A. There is general technical guidance in the RPSM. No special guidance for advisers is planned.

Q. We are aware that there has been several re-writes in respect of elements of the overseas transfer guidance in Chapters 13 & 14 of RPSM. Can you tell us what the current position is please?

A. Chapters 13 and 14 of RPSM have been updated to take into account drafting changes to the regulations which became SI2006/206 and SI 2006/208. The revised guidance is available in pdf format on HMRC’s Website. It may be updated again, for example in response to further questions for clarification.

Q. Will HMRC issue guidelines on how a QROPS should maintain itself to remain a QROPS?

A. No. The requirement that a scheme has to meet to be a QROPS are specified in section 169 of FA2004 and in SIs 2006/206 and 2006/208, and there is guidance on them in Chapter 14 of RPSM. In order to be a QROPS a scheme’s manager has to undertake to inform HMRC if it ceases to be a “recognised overseas pension scheme.

Q. With other A-Day changes significant knowledge, experience and wisdom will be required and a UK advisory licence. Will HMRC run any training programmes or allow the private sector to provide this service?

A. HMRC is not intending to run any training programme on overseas transfers.

Compliance Issues

Q. Will HMRC maintain a list of offending advisors?

A. We have no plans to do this.

Q. What process will exist to publicise “offenders”?

A. A scheme that is excluded from being a QROPS will be removed from the QROPS database.

Q. Is it the intention of HMRC to tighten up the advice process in order that transfers that should take place do take place and those that should not, do not?

A. A transfer to an overseas scheme that is not a QROPS will give rise to charges on the UK scheme member and administrator. That should mean that UK schemes do not make such transfers.

Q. Would HMRC welcome a standard advice process to ensure their compliance programme is efficient and successful?

A. APSS has issued guidance on overseas transfers in Chapter 14 of RPSM. We will consider expanding that guidance in the light of the enquiries and comments that are received.

Q. Will HMRC consult with the ATO and IRNZ as regards its compliance programme?

A. APSS will consult as widely as necessary for compliance purposes. If it has reason to think that the overseas transfer rules are being abused then it will use any available information source, including the exchange of information provisions in our Double Taxation Agreements with Australia and New Zealand.

Q. Clearly significant tax-planning opportunities will allow greater tax reliefs via the UK post A-Day regime. Are we correct in assuming that this is part of the reason for new compliance processes?

A. Under the new regime there will be fewer restrictions on the tax-free build-up of rights under a UK registered pension scheme but scheme payments will be subject to new charges intended to recoup excess relief and to prevent payments being made in an unauthorised way. To deter abuse transfers to overseas schemes will be taxed as unauthorised payments unless they are made to a QROPS. Transfers to a QROPS will be potentially liable to a LTA charge, and a subsequent unauthorised payment from a QROPS will give rise to a charge on the same basis as if it had been made from a registered pension scheme. If a QROPS fails to comply with the reporting requirements HMRC can exclude it from being a QROPS.

Q. How do HMRC wish to be advised of compliance breaches Post A-Day as regards QROP delinquency?

A. APSS's Compliance Section will be prepared to consider any information provided about non-compliance with the overseas transfer requirements. This can be given over the phone or in writing - the latter is more useful, and it is helpful to receive as much evidence and detail as possible.

QROPS & Lifetime Allowance (LTA)

Q. How does someone who is an overseas resident confirm their LTA?

A. A transfer to a QROPS will be a benefit crystallisation event under section 216 FA 2004 and will give rise to a lifetime allowance charge if the amount transferred exceeds the individual's unused lifetime allowance (LTA). The LTA to which everyone is entitled is £1.5 million in 2006/07 and will rise to £1.8 million in 2010/11. The figure for subsequent years will be obtainable from the HMRC Website at that time.

Where an individual has used some of their LTA on a previous crystallisation of their rights the UK scheme administrator will at that time have informed them of the percentage of LTA that they have used up. Where an individual has in certain circumstances notified HMRC of their entitlement to an enhancement of their LTA they will have been informed by HMRC of the additional percentage of LTA to which they are entitled.

Inheritance tax Implications

Q. What are the IHT implications for an overseas transfer to a QROPS assuming a member remains UK domicile?

A. The transfer would not of itself be a chargeable occasion for IHT purposes. As a QROPS is not a UK registered pension scheme the funds in it will be caught by paragraphs 57 and 58 of schedule 36 to FA 2004 (and the transitional relieving provisions will not apply). If the funds have a UK source they will be "relevant property" for the purposes of the IHT regime in Chapter III, Part III IHTA. This means, broadly speaking, that there will be IHT charges on the current value of the funds every 10 years and on any payments of capital out of the scheme. If the UK domiciled individual died whilst entitled to a pension from the QROPS there could be an IHT charge on the funds being held in the scheme to produce that pension income.