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HMRC removes all Cyprus QROPS

Questions are being asked as to why Her Majesty’s Revenue and Customs has removed all the Cyprus-based Qualifying Recognised Overseas Pension Schemes from its list of registered schemes.

HM Revenue & Customs last week removed all Cyprus based QROPS from its list of registered schemes – raising questions about why it did so and what HMRC’s intention is towards the QROPS market.

The removal of the Cyprus-based schemes is significant because Cyprus is an EU member and it had been widely believed that schemes within the EU were out-of-reach of HMRC. The removal of the schemes was revealed when HMRC published its updated list (available here) of registered QROPS late last week.

It is believed that there were only a small number of registered schemes in Cyprus and that they were exclusively employee schemes for companies based on the island. A list published in March shows four schemes, including one for employees of Big Four accountancy firm Pricewaterhouse Coopers.

HMRC did not offer an explanation on the updated list as to why the schemes were removed and a spokesperson declined to comment on the matter.

QROPS specialist Stephen Ward, managing director of Alicante-based Premier Pension Solutions, said, after spending a significant amount of time researching the decision, that Cyprus may have fallen foul of the same QROPS condition which saw 310 Guernsey schemes lose their QROPS status earlier this year.

According to Ward, provisions in Cyprus’s Income Tax Law 2002 (specifically amended articles 5(1) (d) and 5 (2) (c)) mean that a non-resident member of a QROPS, who had no historic employment connection in Cyprus would not be taxed on income, where as a resident scheme member would. Ward suggests this means Cyprus fails the recently established benefits tax relief test.

The test reads: “Where tax relief in respect of benefits paid from the overseas pension scheme is available to members of the scheme who are not resident in the country or territory in which the scheme is established, the same or substantially the same tax relief must…also be available to members of the scheme who are resident in the country or territory…”

Again, HMRC would not confirm or deny whether Cypriot schemes were removed because they failed this test.

Whether or not this is the reason, it has perhaps sowed a seed of doubt in the minds of those who had thought that schemes within the EU were “bullet proof”, according to Global QROPS director Paul Davies.

“The industry was under the impression that almost regardless of how a scheme was set up, because of European rules, HRMC could not discriminate against other country’s pension schemes,” said Davies.

“It certainly puts that little nagging doubt in the mind of the industry.”

Ward meanwhile, said the decision marks a climate change for the overseas pension industry.

“This illustrates that HMRC are looking at jurisdictions that have schemes which have been recognised as QROPS, and reviewing whether schemes satisfy the regulations as they apply since 6 April 2012.”

Last Word Media Limited Copyright (c) 2011

Readers' comments

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  • Denton Mackrell says:

    My reading is that this new action applies only to QROPS schemes and not to all pensions, investments etc. Provided that the individual has already obtained from HMRC a formal declaration that he/she is no longer deemed UK taxable but Cyprus taxable then the bulk of savings, pensions etc will still only be taxable at Cyprus rates. The QROPS position is still unclear.

  • @Mike & Martyn – I have flagged the news to a financial advisor friend of mine. I’m sure he will understand the implications.

    Commenting on the removal of the Guernsey based schemes earlier this year, he advised:

    “This does not, in itself, mean that these schemes are not authorised, but it does indicate a high level of uncertanity surrounding certain jurisdictions, including Guernsey, as suitable for QROPS going forward.

    It is important to point out that if you have transferred UK pension funds into a recognised QROPS that is based in Guernsey, you are not in any danger of tax penalties being levied. However, you should not make any further payments into these schemes until there is clarity over the schemes status post April 6th 2012. In other words, you do NOT need to move funds from existing arrangements. We have been made aware of certain companies on the island that are telling clients they need to move & thereby incur additional fees. I suggest that if you are advised to make any changes, contact the scheme administrator before taking any action.”

  • MARTYN says:

    Mike: this is obviously causing Shockwaves but my reading is QROPS schemes of which it ‘seems’ there are relatively few. If u r right and this affects all UK exPat Pensioners in Cyprus then yes, we should all be worried. My wife & I showed interest in QROPS a few years ago and were advised to ‘wait n see’, which we have. Nigel, others, can u add anything re these concerns.

  • Mike says:

    Goodness, this will presumably have a massive implication for retirees who have secured their future via a pension. Can I assume now that UK tax rates must now be paid instead of Cypriot tax and that anything left in a will will be subject to inheritance tax? Then again will individuals be forced to buy an annuity and be denied the availability of drawing a lump sum at any time of their choosing.

    Just when retirees drawing on a sterling pension are seeing a little improvement on the Euro exchange rate those with a larger income will be hit with this. I assume all such pensions will be forced to repatriate the policy back to UK. All in all I guess more cost implications. Have I got this right?

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