Recent Changes Affecting QROPS
HMRC reviews new Manx QROPS legislation
The new Manx QROPS legislation is being scrutinised by HMRC for a second time after initially being accepted by the UK tax authority as suitable for QROPS schemes and many other providers are awaiting the outcome before their own applications can be registered.Only one Isle of Man QROPS operating under the 50c rules has been admitted to the QROPS list.
Boal & Co’s scheme operates on the basis that members must use 70% of their pension pot to provide a retirement income, as stipulated by HMRC, calculated from the point of transfer into their QROPS. After benefits are taken, which may be many years later, there may be a large amount of of investment growth which can potentially be taken as a lump sum.
The QROPS list itself does not guarantee that a scheme meets QROPS rules and schemes can be subject to further HMRC sanctions, so we will have to wait and see whether HMRC decides that the new 50c legislation meets all it's QROPS requirements.
French Government to Tax Pension Lump Sums
From 1 January 2011 lump sum payments from pension funds in excess of €6000 will now become taxable in France.
Amounts will only be liable to tax where the original pension contributions were tax-deductible, whether from personal contributions or employers contributions. The new rules apply to all pension arrangements, including QROPS, but at present the UK government service pensions and local government pensions are exempt.
The only other exemptions are in certain circumstances, for example invalidity, unemployment or the death of a spouse.
Fortunately the way that the taxable amount payable is calculated is not as harsh as you may immediately think.
In order to calculate the tax due you are able to divide the lump sum by 15 and then add this amount to your taxable income for the current year. The additional tax liability is then multiplied by 15 to arrive at the amount of tax due. Anyone with a large pension fund may wish to consider how much of a lump sum, if any, they wish to take as the top rate of income tax in France is currently 41%.
For someone who does not currently have any income in France then they could take a lump sum of up to €89,445 without any tax liability. Anyone who already has income of €19,000 could take a lump sum €100,000 and tax payable would be €5500.
In the past the taxation of UK pension income has been quite a grey area and could be taxed as pension income, or annuity income, depending on how this was declared tax on annuity income is much more favourable. In future if you were to have your lump sum taxed as pension income it would be unlikely that you could claim the income as annuity income, and this would be taxed as pension income. Anyone already taking benefits should be able to remain with their current tax treatment.
If you are considering retiring to France and have not yet taken your pension benefits then we would recommend taking the lump sum before arriving in France.