New implications having to do with Brexit have emerged in the wake of last month’s news that HM Revenue & Customs removed all of the recognised overseas pension schemes in France and Italy from its official list of such entities, according to a Financial Times report.
As reported here last month, HMRC took an axe to all 19 Italian ROP schemes and all 11 French schemes when it updated its bi-monthly list in mid-November, along with all but three Canadian schemes. In total, some 82 schemes that had been on the previous version of the list had disappeared.
The difficulty for French and Italian expats living in the UK is that if they wish to take their pensions with them when they return to their home country, if there are no HMRC-recognised schemes for them to transfer their pensions into, they may be “liable for UK tax charges, which can amount to half the value of the fund”, the FT noted in its report, on Friday.
The irony is that ROPS – or QROPS, as they previously were known – had their origin, in 2006, in EU legislation that requires individuals living within the bloc to be able to transfer their pensions across Europe’s borders without difficulty.
For now, according to the FT‘s report, there are still “dozens” of German schemes on HMRC’s list, and two in Spain.
The FT quotes Geraint Davies, managing director of Guildford, Surrey-based Montfort International, as saying that HMRC is thought to have been “getting worried about pension money flowing out of the UK to offshore schemes which weren’t compliant with its rules”.
It also quotes James McLeod, head of pensions and general counsel to AES, the expat-focused advisory firm, as noting that French or Italian expats might “have to shift their [pension] fund to Gibraltar or Malta, or the pension will have to be left behind in the UK, unless they can think of something else to do with it”, if no new ROP schemes are set up in France and Italy between now and when the UK finally leaves the EU.
Bethell Codrington, global head of pensions at TMF Group, said he thought Malta was more likely than Gibraltar to benefit, if the current situation remains unchanged, as Malta is “the only other EU country with full double tax treaties with both [France and Italy]”, and thus the only one where they could be sure their pension wouldn’t be “subject to tax twice”.
A financial adviser who advises expatriates on pension matters – and who says he personally doesn’t recommend ROPS very often, because he doesn’t think they are generally necessary – says that for most EU citizens who have pensions in the UK, the best option is to leave their pension in the UK. That’s because there are already double-tax agreements in place that would ensure that these individuals would not be taxed twice on their pension income, he says, and it would save them the associated transfer costs, which can be significant in some cases.
Well-known schemes included
As noted here last month, the French schemes that were removed included those of AXA and Aviva, according to Alex Norwood, a Montfort International financial planner.
When asked why it had delisted the schemes, HMRC told the FT, as it told International Investment in November, that it doesn’t comment on identifiable schemes or jurisdictions.
To read the FT’s report on its website, which has a paywall, click here.