International: qualifying recognised overseas pension schemes (QROPS): exclusion and other loss of QROPS status
A scheme can cease to be a qualifying recognised overseas pension scheme (QROPS) because:
- the scheme manager no longer wants the scheme to be a QROPS,
- the scheme no longer meets the conditions to be a recognised overseas pension scheme (including the conditions to be an overseas pension scheme)
- HMRC has excluded the scheme from being a QROPS
- the scheme lost status from 14 April 2017 because the manager failed to submit a revise undertaking in respect of the overseas transfer charge.
From 14 October 2013, in any of these circumstances the scheme will be a former QROPS.
Exclusion of a scheme
Section169 (5) - (7) & 170 Finance Act 2004
HMRC can remove the QROPS status from a pension scheme even though it continues to meet the conditions to be a recognised overseas pension scheme (ROPS). This is known as exclusion. A scheme can be excluded if certain things happen and as a result HMRC consider that it’s not appropriate for the scheme to continue to be able to receive tax favoured (recognised) transfers from registered pension schemes.
The following events can trigger an HMRC decision to exclude the scheme:
- the scheme has no scheme manager,
- there has been a significant failure to comply with a requirement imposed by regulations made under section 169(4) Finance Act 2004,
- the scheme manager has failed to pay the overseas transfer charge or interest on that tax charge,
- there has been a significant failure to comply with a requirement imposed by Schedule 36 Finance Act 2008,
- any information given when complying with the above requirements is materially incorrect, or
- any declaration given when complying with the above requirements is false in a material respect.
HMRC will tell the person appearing to be the scheme manager that the scheme has been excluded. The scheme manager can appeal against the decision to exclude the scheme. The appeal must be made in writing within 30 days of the date of the letter notifying the decision to exclude the scheme.
HMRC can reverse their decision to exclude the scheme at any time. HMRC will notify the scheme manager if they do this.
From the date of the exclusion, and for the duration of that exclusion the consequences will be as set out in ‘Consequences of ceasing to be a QROPS’ below.
What is a significant failure?
The legislation gives a wide definition to what can be considered significant in the above situations. A failure to comply with a requirement to provide information will be significant if:
- it’s a failure to give details (information or evidence) that may be (or is) of significance, or
- there are reasonable grounds to believe the failure may (or does) prejudice HMRC collecting tax that’s due.
What is a significant failure or materially incorrect information will depend on the individual facts and circumstances for each scheme. It is not possible to say in advance if a failure would be significant enough to warrant exclusion of a scheme.
Requirements imposed by regulations made under section 169(4) FA 2004
Currently these regulations are the Pension Schemes (Information Requirements - Qualifying Overseas Pension Schemes, Qualifying Recognised Overseas Pension Schemes and Corresponding Relief) Regulations 2006 - SI 2006/208. These regulations include the requirements to:
- re-notify the scheme’s ROPS status to HMRC (effective from 6 April 2016) - see PTM112600,
- tell HMRC about payments made by the QROPS in accordance with regulation 3(2) (see PTM112700 ‘Reporting payments made by the scheme’),
- tell HMRC that the scheme ceased to be a QROPS under regulations 3B,
- fully respond to an HMRC request for information in respect of a transfer made under regulation 3A (see PTM112700 ‘Providing information to HMRC about transfers received by the scheme’),
- notify HMRC of any changes or corrections to the information previously given to HMRC in accordance with regulation 3C (see PTM112700 ‘Changes to information supplied’),
- tell HMRC when the overseas transfer charge becomes due or repayable due to a change of circumstances – see PTM103150,
- give members information about transfers out of their scheme to another QROPS – see PTM103150, and
- give a transfer statement to a QROPS scheme manager when a transfer is made to another QROPS – see PTM103150.
Consequences of ceasing to be a QROPS
If a scheme stops being a QROPS, whether voluntarily or otherwise, it can no longer receive a recognised transfer. From the date the scheme ceases to be a QROPS:
- transfers from a registered pension scheme to the scheme will be an unauthorised payment and taxable accordingly, and
- any transfer from an overseas pension scheme that has:
- received UK tax relief, or/and
- whose funds were derived from a recognised transfer from a registered pension scheme,
may be taxed as an unauthorised payment under the member payment provisions of Schedule 34 FA 2004 - see PTM113210.
Existing members of the scheme at the time of loss of QROPS status, are not prevented by the tax rules from continuing as members of the ongoing scheme. They may receive benefits that were due under the QROPS from the sums that had transferred in when the scheme was a QROPS, in the same way as they would if QROPS status had continued.
The loss of QROPS status will not of itself incur member payment charges (see PTM113210). However, payments from the QROPS to the member will still be subject to the member payment provisions.
Schemes that have lost QROPS status on or after 14 October 2013 are former QROPS and are still required to send reports to HMRC. If the scheme manager of a former QROPS fails to meet the information requirements they can be subject to penalties - see PTM112800.