Qrops clampdown prompts new Guernsey pensions rules

Guernsey will create a new pensions tax regime to cope with the HM Revenue & Customs (HMRC) proposals which threaten to stop the island offering qualifying recognised overseas pension schemes (Qrops).

The Guernsey proposals will introduce a completely new pensions regime open to both Guernsey residents and non-residents. It will provide no tax relief on pension contributions but enable benefits to be paid free of Guernsey tax.

It is anticipated that current Guernsey Qrops will transfer into this new regime to remain compliant within the new 'Condition 4' of the HMRC changes.

Under HMRC’s changes Guernsey would have to charge the same rate of income tax on its non-resident Qrops members as its residents. This could have forced the crown dependency out of the Qrops market, after the rules come into effect on 6 April.

Stephen Ainsworth, president of Guernsey Association of Pension Providers (GAAP), said: ‘We have been working very closely with the Guernsey Income Tax Office and with senior politicians to create a flexible but robust pensions system which not only meets the needs of Guernsey residents but secures the position of those former members of UK pension schemes who have trusted Guernsey Qrops with their retirement savings.

‘I am delighted with the result, which demonstrates the importance of pensions saving within Guernsey.’

HMRC plans to update Qrops legislation in the Finance Bill 2012 in order to clamp down on abuse. The draft rules, published in December, included a clause that would tax non-resident Qrops members at the same rate as local residents. 

This change would damage Guernsey as Qrops income is paid gross to non-residents as opposed to net of tax.

Guernsey is known as a third jurisdiction Qrops provider because those who use its schemes do not live on the island.

Roger Berry, chairman of the Qrops subcommittee of GAPP, said: ‘These proposals will provide members with a bona fide pension scheme capable of meeting HMRC requirements and still upholding the original spirit of Qrops.”

In 2011 GAPP introduced the world’s first code of practice for Qrops providers.