The warning comes following reports that pension scheme trustees are being contacted with information that the UK’s pension rules can be breached and tax avoided if they transfer their scheme to Ireland. The trend reflects the pressure on UK revenue restrictions caused by increasingly mobile wealth management solutions.
The advantage of an Irish scheme over a UK scheme is in the drawing of benefits. In Ireland the pension fund can be transferred to an Approved Retirement Fund where there is no requirement to purchase an annuity and on death the fund can be left to beneficiaries although it will be subject to Irish inheritance tax at 20 per cent.
Transferring a pension scheme to Ireland is only wholly acceptable if there is a genuine existing trading company in Ireland and the member is employed there.
David Seaton, director of consultancy at Rowanmoor Pensions says: “We understand that some practitioners are offering to establish trading companies, employment contracts and even accommodation to UK companies in an attempt to break the UK pension scheme rules. IFAs who get involved in such practices are likely to become the subject of enquiries by the Pensions Regulator, HMRC and the FSA.
The requirements for a transfer to Ireland are that an Irish self-directed trust, like the UK Ssas, can only be established by a genuine Irish registered company that is trading. There must also be a proper employer-employee relationship.
Once this is established, the UK pension fund can then be transferred to Ireland. If the scheme meets the Irish Revenue requirements then they approve the scheme under their discretionary powers. If they do not, or the Revenue believes the employment or trade is not genuine, then approval will not be given and any monies transferred will remain in limbo and eventually taxed as a non-approved scheme.
The Irish scheme must also obtain the status of a Qualifying Recognised Overseas Pension Scheme (QROPS) from the UK Revenue, as without QROPS status the transfer from the UK scheme will be an unauthorised payment, which could result in a combined tax charge of 104 per cent.
Seaton says: “I have visited Dublin, as a past Chairman of the Association of Pensioneer Trustees, and spoken to the Association of Pensioneer Trustees Ireland. I was warned that the Irish Revenue and the UK HMRC both communicate to ensure only genuine transfers take place. The Irish Revenue sees it as suspicious for a new company to establish a pension scheme in it’s first year of trading and will fully investigate. There are added complications to being a UK member of an Irish pension scheme and any contribution made in Ireland must be disclosed in the UK as a benefit in kind.”