STM Group, the Gibraltar-based, AIM-listed provider of QROPS and other pension products and corporate services, said today that it expects the introduction of a just-announced 25% tax on overseas pension transfers to cost it a maximum of around £1.1m (US$1.3m, €1.25m) in 2017.
STM included this “worst case scenario” estimate in its annual results statement for 2016 this morning, London time, which also showed that the company posted a pre-tax profit for the 12 months to the end of December of £2.8m, up 3.7% from the previous year, on revenue that grew by 8% to £17.4m. Earnings before interest, tax, depreciation and amortisation stayed flat at £3.1m.
As reported, STM Group, like other companies in the business of helping to enable British pension scheme members to transfer their pensions overseas, was hit by the surprise news in Chancellor Philip Hammond’s budget speech last week that a new 25% tax would be levied on transfers into qualifying recognised overseas pension schemes (QROPS) based outside of the EEA, in situations in which the individual was not relocating to that country.
The charge took effect on 9 March.
STM’s shares were immediately hit by the news, falling more than 22% in value on the day of the budget, and they continued to fluctuate on the subsequent news that 80% of STM’s new QROPS business comes from outside of the EEA, and therefore would be affected by the tax charge.
Today, the company’s statement said that although it was still “very early days to fully understand the exact impact” of the new tax, “it would appear that some 20% of anticipated new QROPS business will be unaffected”.
“The other 80% of anticipated new business, which is generated outside of the EEA, may be at risk,” STM said, reiterating earlier statements.
“However, we believe that some of this potential loss of QROPS business will manifest itself into new UK SIPP applications, as a result of the proposed legislation.
“It is still too early to quantify the exact potential impact on our new QROPS business, which the directors anticipate will be somewhat mitigated by an increase in UK SIPP applications.
“We have however taken a prudent approach to revising our expectations for the growth in Group revenue from 2016 to 2017, and assumed that on a worst case scenario, the potential reduction in new QROPS applications will result in our Group revenue expectation for 2017 being reduced by some £1.1m, compared to our previous expectations.
“This worst case scenario still represents double digit revenue growth from 2016 to 2017, and does not yet reflect changes in the Group’s cost base which management will focus on, where appropriate, to ensure that margins can be maintained.
“In turn, it is anticipated that this proposed legislation will stagnate some of the QROPS market in Gibraltar and Malta, and that this will lead to some consolidation in the marketplace.
STM, with strong cash balances, would be well placed to capitalise on this
As reported, STM acquired the UK SIPP provider London & Colonial last year, and today it highlighted the usefulness of this acquisition in enabling it to shift some of its lost QROPS business in the direction of L&C.
Its existing 11,000 QROPS clients, it added, would not be affected by the changes.
Just before 1pm London time today, STM Group’s shares were at 38.12p a share, having been as low as 33.875p at 8am. Before the news on Wednesday, they had opened at 51p a share, but fell to 39.5p by the close of that day.
AIM listing in 2007
STM originally began as a corporate services adviser, listing on the Alternative Investment Market of the London Stock Exchange (pictured above) in 2007. However, its QROPS business grew rapidly alongside the general QROPS industry, after the sector was created in the wake of the A-Day pension rule changes in 2006.
At the end of 2009, STM became one of the first companies to introduce a Malta-based QROP scheme, in the wake of HM Revenue & Customs’ decision to recognise Malta as a QROPS jurisdiction at that time.
Today, STM has trading operations in Gibraltar, Malta, Jersey, and Spain.