For anyone who likes watching the taxman squirm, this has been a good week: 122 pension investors who set up 'qualifying recognised overseas pension schemes' (QROPS) in Singapore will be cracking open the champagne. Here's why, and what their latest victory over HM Revenue & Customs means for you.
Firstly, for the uninitiated, what is a QROPS? These date back to 6 April 2006 dubbed A-Day' when some pretty meaty reforms swept through UK work and personal pensions. Among the changes was one that was designed to benefit the thousands of British expatriates either living abroad already, or planning to once they hit retirement age.
From A-Day, a QROP could accept a pension transfer from a UK pension scheme, provided it met certain qualifying conditions. If it did so, the overseas recipient could escape being bound by many of Britain's pension rules, such as the requirement to buy an income stream (annuity) at the age of 75. They'd also enjoy greater investment flexibility and avoid incurring UK tax on savings.
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The court case that is making headlines now came about when HMRC decided to delist a scheme set up in Singapore called Rosiip that had previously qualified. HMRC argued that inclusion on the qualifying list in 2006 didn't guarantee permanent QROPS status. Having decided that Rosiip no longer met the criteria in May 2008, HMRC wanted to levy a retrospective charge on transfers into the scheme of 55%. In 2011, it looked as though HMRC would get its way when the Court of Appeal ruled that the proposed charge was valid.
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Enter High Court judge, Mr Justice Charles, who has just ruled that HMRC's behaviour towards a group of pension investors who appealed that decision has been "shameful" and "aggressive". Among his complaints is the fact HMRC acted too late against Rosiip and appears to have singled them out, having waived the 55% charge on other non-qualifying schemes. He wants a clear policy statement from HMRC within 21 days of how the QROPS qualifying criteria work.
So what does this humiliating verdict for the taxman mean for Britain's estimated 10,000 QROPS investors? The answer for now is a good deal of uncertainty, while they wait for HMRC to respond.
As Geraint Davies, managing director of QROPS specialist Montfort International, told FT Adviser, this verdict could result in a suspension of all transfers overseas if HMRC decides, for example, that all QROPS must be vetted before being admitted. For now any prospective or existing QROPS investors should keep watching this space, and get ready to seek professional advice
