Industry experts support retaining the 70 per cent income for life requirement for recognised overseas pension schemes but question how the HMRC will justify it in the Autumn Statement.
Originally it was announced that the income for life rule would be removed on Rops schemes in order to enable savers to access the same pension freedoms as UK residents.
However in March 2015, HMRC made the decision to temporarily retain the requirement.
Paul Davies, director of Rops adviser Global Qrops, said: “In my opinion the concern for HMRC was that by extending the same levels of flexibility to Qrops that are available from UK money schemes Qrops once again become as attractive or more attractive than UK pension schemes.
“The question remains whether HMRC can justifiably continue to impose this – when many UK pensions have had no restrictions since April 2015.
Geraint Davies, managing director at Montfort International, said: “If there is to be a review to the 70/30 rule, we believe the reasons to leave the 70/30 in place will be to prevent advisers borrowing pension rules of jurisdictions (using schemes in those countries) where there is no tax on pension benefits, such as New Zealand and Gibraltar (where there is only 2.5 per cent) allowing the cash to be taken out without tax.
“This is because the tax and retirement rules of those countries permit such options.
“Malta and other European countries have tax on pension benefits and to avoid paying tax on exit there needs to be a double tax agreement in place that takes the taxing rights to the country of residence at time of withdrawal.
“In the end, HMRC may believe that some of the Brits based overseas will return to the UK and start paying UK income tax again from these lifetime pensions paid by these Qrops caught in the 70 per cent/30 per cent rule.
“If they withdraw the funds before coming back to the UK, HMRC would not get to tax these withdrawals (if under £100,000 or if more than £100,000 should they have spent five full tax years overseas).
“The 70/30 rule creates the forced income stream.
“So if people become resident again of UK they will start paying UK income tax on their withdrawals. If they cash out before returning, they could get away with a lump sum essentially free of tax.
“Hence a removal of 70/30 might be a removal of tax raising options and a two class society – those who pay tax and those don’t.”
lucinda.borrell@ft.com