Hi everyone,
Today’s article is an important update on Pension Transfers and talks about what you can and can’t do now if you wish to “unlock” your pension, or use Qrops if you are an expat.
A newly formed HMRC anti-fraud, tax avoidance squad gives our topic spice too.
Due to the prevalence of schemes to unlock pensions for those under the age of 55, HMRC have formed the avoidance and counter fraud group, who are tasked with effectively putting an end to this practice.
With recent revelations by SIPP and insurance providers, that they will be refusing pension transfer money to these “schemes,” the government have moved to actively shut down any attempts to remove funds before age 55.
Furthermore, any company trying to encourage people to use these vehicles will be putting their company and clients at risk. For those who try to liberate their pensions like this, the tax implications and penalties in the future could prove to be very serious, because tax laws have now shut down this pension “unlock” loophole. (So if you are advised to do this… don’t!).
A recent High Court decision ruled those using these schemes to access their funds before the age of 55 are using illegal means to do so. However, trustworthy financial advisors and others in the industry have acknowledged for some time, that these schemes are fraudulent. Personally, even though many people have used them, I am surprised that HMRC did not act sooner.
Furthermore, the HMRC have stated that those who are considering such schemes will face risks of having to pay the taxes plus interest payments. People will also stand to lose the setup charges, which in some cases were as high as £100K. With plans to double their staff in the compliance unit, the HMRC have powerful resources in place to challenge tax avoidance schemes in a strong way, and they mean to act swiftly.
Some wealthy investors, have been targeted by unscrupulous firms encouraging them to use offshore schemes to unlock their pensions earlier than retirement, and could inadvertently find themselves in trouble now.
Yes, there are ways to shift funds offshore, and do so legally, without flouting UK laws, but going offshore is definitely not for everyone. It can mean having to give up residency in the UK for example, so getting competent financial advice, which is ethical, is crucial to doing so successfully, and making sure you keep HMRC happy too.
Some of my clients live overseas (New Zealand, Japan etc) and if you are an expat then you may be familiar with Qrops.
What is Qrops?
Qrops, is a financial vehicle to help you effectively receive a higher income level through pension drawdown, while living overseas. Key components include more cash for your heirs, and effectively lowering your inheritance tax if you choose a country overseas with no “death duty.”
However, if you are looking to reduce your tax burden by using Qrops you must make sure you know the rules and are not getting involved in a scheme that can be challenged by the government. The last thing you want is make yourself vulnerable to unforeseen tax charges which end up devastating your financial security.
Pension busting to take out 100% of your funds is possible, but only when you are no longer a UK resident, and only then with certain restrictions. In April 2012, rules were introduced that ensured only 30% could be removed as a lump sum, and this amount is also subject to certain government terms.
Please…
Beware of firms not authorised to promote removing funds from the UK, which effectively just transfer your pension funds to a pension unlock scheme. Due to the misuse of Qrops, the HMRC moved to stop the flow of pension money outside the country, and have instituted new rules to shore up reporting requirements for those using offshore pension vehicles.
The tightening of rules does not ensure that abuse will not occur. For this reason, it’s important that your financial advisor is knowledgeable concerning all the new rules recently introduced by the Revenue so you benefit from sound ethical advice in these critical areas.
Qrops are being monitored very closely for abuse and for compliance with the letter of the law and the last thing you want is to find HMRC pursuing you because the financial advice you received cut corners. Wealthy expats are currently being targeted by firms not sufficiently regulated so be on your guard.
To sum up…
- Don’t try to “unlock” your pension before the age of 55, it’s deemed illegal now
- Be cautious if firms advise you to “go offshore” to drawdown your pension
- Be aware you must play by the rules 100% if you are an expat and wish to use Qrops.
Finally, with the clampdown on tax relief on pensions having recently been announced, the best approach, is a wait and see one, along with a consultation with your financial advisor because your wealth must always stay on the right side of the law.
For any questions on the above, please phone me on 0800 321 350 – it’s free from a landline. If you prefer, call me direct on my mobile at 0757 679 1009.
Alternately fill out the form below…
I believe it is so unfair that funds are not able to be released, especially as I contributed to this pension and the money is MINE. It would help greatly to have extra finances, as my job does not pay well and would make life so much easier for myself and my children.
Yours
Hi Siobhan,
Yes, I can see how you feel, though, remember it’s done to protect assets for the future, and remove unscrupulous abuse of the facility. One thing for certain though, the rules are rules, so we have to run with them.