In addition to the final Autumn Statement, the UK government also released a number of draft bills at the start of December. These include the Draft Finance Bill 2017 and the Draft Legislation on Pension Scheme Regulations 2017. In conjunction with our partners at Momentum Pensions, we take you through each of these bills and their potential impact.
Draft Finance Bill 2017
The key changes here are the annual allowance reduction, an increase in the time you need to be away from the UK to qualify for access to more flexible benefits in a QROPS and an increased tax on your foreign income pension (if you are a UK income tax payer).
Overall the draft bill brings foreign pensions more into line with a UK pension and makes the qualification criteria tougher.
Restriction of the Money Purchase Annual Allowance (MPAA) to £4,000
Consultation for this ends on 15th February 2017 and aims to restrict the amount of tax-relieved contributions an individual can make in a Tax Year into a UK Defined Contribution Pension if they have already flexibly accessed their pension savings.
Changes to period you must be an expat for
This draft regulation looks to align the tax treatment of foreign pensions more closely with the UK’s Pension Tax Regime. This draft will have a significant impact on expats, as the 5-year rule will now be potentially extended to 10 years. This deadline is set to be in place for April 2017. This is a key amendment in the proposed pension bill changes.
It is, therefore, important if you are considering a QROPS, to complete your transfer before April 2017. This only affects you if you believe that you will have spent less than ten consecutive years outside of the UK by the time it comes to accessing benefits from your pension.
Changes to the tax treatment of Foreign Pension Regimes
Another significant change in the pension bill changes, is that 100% of foreign pension income will become liable for UK Income Tax. The rate currently stands at 90% for a QROPS income. Unfortunately transferring your pension before April 2017 won’t help you avoid this increased tax. This will impact all foreign pension income regardless of the policy date. However, if you are going to be a tax-residency other than the UK when you draw your pension, you will not be impacted by this change.
Draft Legislation on Pension Scheme Regulations 2017
QROPS rules and qualifying criteria changes
These amendments are subject to consultation up to February 2017. These changes would see the 70/30 rule abolished for Non-EU schemes provided the Scheme or Provider is regulated, and the Scheme is based in a territory with a Tax Information Exchange Agreement with the UK. This change paves the way for such Schemes to offer Flexible Access Drawdown. Gibraltar (subject to the appropriate local Primary Legislation change) and the Isle of Man should now be in scope to provide full flexibility from April 2017. Meaning a greater range of QROPS options for expats in the future.
Pension scams protection
In addition to these two draft bills, there are also proposals on consumer protection from pension scams. These are positive changes to the industry that are designed to make pension information more transparent and to protect you, the end user. Amongst the proposed measures are:
- Banning cold calling concerning pensions
- Limiting the statutory right to transfer
- Reducing the ability to open fraudulent schemes
Pension bill changes summary
Are you considering moving your pension over to a QROPS? Concerned that you will not have spent ten consecutive years abroad? We recommend speaking to an adviser and beginning your transfer process.
Already transferred your pension to a QROPS? Then it is important to note that your monthly income will be marginally reduced if you pay UK Income Tax. As from April you will need to pay tax on 100% of your pension draw rather than 90%.
These measures are in draft so are subject to change. However, is worth noting that they are under review and are likely to come to fruition in 2017.
If you would like to discuss the pension bill changes, please contact us at the office most convenient to you. All contact details are available here.
