HM Revenue and Customs has been forced to review its policies in selecting and handling qualifying recognised overseas pension schemes after suffering an embarrassing defeat in a judicial review.
Following four days of court proceedings, HMRC agreed on Friday (21 June) to withdraw the assessments which would have forced policyholders to pay a 55 per cent penalty charge, and to pay clients’ entire legal costs on an indemnity basis.
Earlier this month the High Court gave permission for law firm Hage Aaronson to proceed with a group litigation order challenging HMRC’s assessments of Rosiip scheme members.
Rosiip was present on the Qrops list in 2006. In March 2007 HMRC discovered problems with the scheme resulting in it being removed from the list in May 2008.
However, removing Rosiip from the Qrops list meant that 122 UK pension holders who had transferred their pensions to the Singaporean scheme faced a possible 55 per cent tax charge on their savings for making an unauthorised transfer.
Mr Justice Charles scolded HMRC for its obstructive and inconsistent behaviour in the case, calling the HMRC’s behaviour as “shameful” and “aggressive”. He also criticised HMRC’s expectations for what a reasonably sophisticated taxpayer would glean from the wording of its Qrops list, calling the notion “bunkum”.
He then ordered HMRC to compose a policy statement within 21 days setting down HMRC’s definitive position on Qrops and explain to the judge why they decided to litigate on the case at all.
The policy statement could have wider implications for the administration of Qrops system in the future.
Geraint Davies, managing director of Qrops specialist Montfort International, told FTAdviser: “This could result in a suspension of all transfers overseas. Something has to happen, they have got to do something. It has a knock-on effect as to how do people give advice to people changing countries?”
He added that HMRC may decide to have potential Qrops vetted before being added to the list.
“It was always an area of special skills for a very few advisers. [Now] there are too many instant experts.”
In 2008 HMRC altered the preamble to its online list of Qrops to include a clause warning prospective investors that it can retroactively change the status of any scheme on the list thereby making them subject to the 55 per cent tax charge.
The newest version of the list, published 15 May, said: “If a scheme has been included on this published list, but did not or no longer meets the conditions to be a recognised overseas pension scheme - any transfer that has been made to that scheme when the conditions were not met, could mean that the member has to pay an unauthorised payment charge.”
HMRC declined to comment.