Investors in the Beazley Consulting Pension Scheme, a Hong Kong-based QROPS, face losing more than half their pension after HMRC declared the scheme was not a genuine QROPS.
What tax charges will I face if I invested in the Beazley Consulting Pension Scheme?
The letter which Beazley has sent out to all the scheme members explains that HMRC may levy an unauthorized payment charge of 40% on the value of the transfer plus an unauthorized payment surcharge of 15%. A total of 55% in tax clawbacks on the pension transfer qrops value.
However, there is a silver lining. Beazley said, having “engaged positively with HMRC” it had received a “valuable concession” in relation to the possible tax charges. According to the letter, HMRC has agreed to waive the client’s liability to the unauthorised payment surcharge of 15% and “view sympathetically” a request not to collect the unauthorised payment charge if the client can demonstrate the transfer into the QROPS was made “in good faith.” In other words, the client will need to prove to the HMRC intended to use the proceeds as a pension and not to cash in on their pension pot. But, Beazley cannot guarantee that HMRC will not impose a levy.
How do I avoid the 55% tax penalty?
The client must submit to the HMRC any advice that they were given at the time of the transfer and the reason why they moved their pension overseas. Anyone who has cashed in their pension will certainly have to pay the tax levied.
What happens to my pension now it is no longer a QROPS?
The letter said as the scheme is no longer a QROPS, clients may now take benefits “entirely in line with the scheme rules” unrestricted by UK legislation.
In Beazley’s defense, DLA Piper, the law firm which is acting on behalf of Beazley says: “The Beazley Consulting Pension Scheme was set up in 2007. At the time Hong Kong lawyers advised that the scheme met HMRC’s criteria to qualify as a Qualifying Recognised Overseas Pension Scheme in the UK.
“Appropriate legal advice was taken in Hong Kong before Beazley Consulting submitted its application to HMRC and HMRC accepted that the scheme met its relevant criteria.
“Some 18 months later, after taking its own advice, HMRC decided that the regulations to which the scheme was subject did not meet its criteria and that the scheme no longer qualified as a QROPS.”
A similar situation occurred before in Singapore when financial advisors mis-sold QROPS as being able to cash in 100% of their pension scheme. The ‘spirit of the law’ always needs to be taken into consideration. This was made abundantly clear after the Singapore QROPS failure and the Gaines-Cooper case in February 2010 in which the entrepreneur faced a £30m tax demand from HMRC despite spending 91 days a year in the country under the tax rules.
Which QROPS are safe?
QROPS allows pension transfers, but they must be used for a pension income for the rest of the life of the scheme member. Normally a 25% initial lump sum is allowed, but the rest must be used to provide a pension income. QROPS based in the Isle of Man and Guernsey which are HMRC approved and have a history of transfers are secure and tax efficient.
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