Australian QROPS Ask for Exemption from HMRC
QROPS Australia News – The FT reported earlier that the Australian Law Council has sent a letter to HMRC on the 16th June to ask for an exemption from HMRC rules concerning UK pension transfers to QROPS in Australia. This comes as HMRC has temporarily suspended its QROPS list to give overseas pensions a chance to get their house in order and to make sure they comply with the new QROPS rules. The new site will apparently look very different and I would imagine the wording will change a lot as well. We will find out more when the QROPS list re-opens on the 1st July.
Most Australian Super funds (the large Australian pension schemes) fall foul of HMRC regulations as they allow pensioners to access their pension before 55 if the pensioner falls on financial hardship which isn’t allowed under UK or QROPS rules. QROPS regulations are more strict and forbid access to pensions before 55 unless a pensioner is in ill health. As most of Australian Superannuation schemes are written with Australian residents in mind, they will anger local Australians if they change their rules and are unlikely to do so. Thus, as a last ditch attempt, the Australian Law Council is lobbying the Inland Revenue for an exemption. But, this means other jurisdictions would need exemptions as well and would likely file a similar letter should Australian pension schemes be exempted. In particular, New Zealand would likely write a letter as well asking for an exemption to the rules.
Most of the larges Australian superannuation schemes are not permitting any more transfers whilst only small self administered pension schemes which were written with QROPS specifically in mind will continue to allow UK pension transfers to Australia. Those who have already transferred could face a 55% unauthorised tax charge. This could get very complicated and the Australian Law Council have pre-empted the potentially expensive fall out from these changes by sending a letter to HMRC. These are the unintended consequences of pension changes when they get written into UK rules.
We are still also waiting to see what happens to Malta QROPS and Gibraltar QROPS. Whether they will allow pension freedoms like the UK, as at the moment, they are still stuck with the 30/70 pension rule, where 30% can be taken as a tax-free lump sum and 70% must pay out a pension income for life.
ASFA Opinion on HMRC Changes
The FTAdviser asked the Association of Superannuation Funds of Australia its position:
“ASFA is concerned that the scope of these changes may have unintended consequences for thousands of people’s retirement, including the imposition of penalty tax on individuals who transferred account balances in good faith.”
So, now HMRC may have to backtrack and get rid of or amend the rules concerning age related benefits to please Australia or impose a high tax charge on those who have already transferred or write an exemption for Australia . But, this would result in other jurisdictions feeling they are treated unfairly. With Australia as the number one destination for British expats, the result could have far reaching consequences and perhaps more court cases such as the Singapore case which was costly and HMRC lost. I would imagine HMRC is mindful of this and won’t want to drag British expats through court again, most of which will have transferred in good faith and are Australian residents. On the other hand, the Inland Revenue will be mindful of having their policies dictated to by a foreign nation. Given the pension freedoms which are now allowed in the UK, removing the 30/70 rule and adding a stipulation to allow early access for financial hardship seems to be the most sensible solution.