Common sense prevails

HMRC's climbdown on QROPS highlights how mainstream the schemes have become in recent years, says Nigel Green

It was a victory for common sense when HMRC recently U-turned on taxing a delisted qualifying recognised overseas pension scheme (QROPS). The Revenue dropped its case against investors in the Singapore-based ROSIIP QROPS, who had legally challenged its decision to charge 55 per cent tax on their funds after removing the scheme from its recognised list.

Additionally, in an unusual move and after the judge, Mr Justice Charles, slammed HMRC's behaviour in this case as "shameful" and "aggressive", the Revenue agreed to pay all costs on an indemnity basis.

To my mind, HMRC's decision to abandon the case was fair and correct. If the Revenue publishes a list of recognised schemes, that list should be fit for purpose by providing the relevant information that investors can rely on.

It would be wholly inappropriate for the investors to be taxed, let alone at a staggering 55 per cent, should HMRC suddenly decide that a particular QROPS should not have been on its recognised list.

Therefore, I welcome the move taken by the Revenue.

ROSIIP, the QROPS at the epicentre of the wrangling, was included on HMRC's list in 2006 after it had been reported that it met the stringent criteria. It was removed from that list in May 2008 after HMRC "discovered problems" with the scheme. In 2011, a High Court judge found that the scheme should never been listed as a QROPS in the first place - a ruling later upheld by the Court of Appeal - then HMRC issued the 55 per cent tax to those who had transferred their UK pensions into it.

The stance taken by Mr Justice Charles and the subsequent reaction by HMRC underscores how QROPS are being prioritised by, and becoming ever more established with, the UK legal and tax authorities.

The reason I suggest the authorities are taking QROPS-related matters increasingly seriously is because demand for them is continually growing among those with British pensions who live abroad, or are planning on doing so in the near future, as more and more expats learn of their tangible and considerable benefits.

Greater tax efficiency

Launched in April 2006, QROPS are HMRC-recognised overseas pensions and are typically used by UK residents who live outside Britain. With QROPS not having to be established in the new country of residence, they can offer greater tax efficiency, flexibility and stability, among other benefits. More than 10,000 UK pensions were transferred out of the UK last year.

I fully expect this rising demand for QROPS to continue in the medium to long term as more and more people are, it appears, actively looking to take themselves and their funds out of the UK because of recent government and Bank of England policies.

After George Osborne's Spending Review for the year 2015/16, harsher cuts and more tax hikes are likely to be introduced because the government (formed of whichever party or parties) is going to need to find an additional £40bn in the following two years.

As such, I wouldn't be surprised to see an increasing number of people between now and the 2015 general election seriously considering moving themselves and their funds out of Britain to escape the fallout of the reduction in public spending on services - and the inevitable consequences that this will bring in communities up and down the country - and to safeguard their hard-earned money from the likely government raids.

Similarly, the incoming Bank of England governor, Mark Carney, has hinted that as part of efforts to stimulate the UK economy, more money printing, or quantitative easing (QE), should be expected when he takes over.

Should this happen, it would be another hammer blow for those workers who are on the verge of retirement because QE forces down annuity rates, which have already reached historic lows. While some will refrain from purchasing an annuity altogether and instead take capped income drawdown from their pension that can be revalued every three years, others will transfer to a self-invested personal pension or QROPS if they are non-UK residents.

Nigel Green is founder and chief executive of the deVere Group