After the High Court ruling what next for QROPS?

Bethell Codrington, Managing Director of TMF International Pensions, writes: Following the recent case in the High Court of Justice in front of The Honourable Mr Justice Charles, on 21st June, HMRC sought the Courts permission to withdraw from the proceedings, paying claimants costs on an indemnity basis (something of a rare occurrence).

Mr Justice Charles was "minded to allow a withdrawal", but only after HMRC had provided him with evidence as to how they would improve the management of QROPS, and how they would impart this information to the public at large.

On 12th July 2013, HMRC presented to the Court their "Written Post Hearing Submission" which they have requested be kept private pending a second report to the Court at the end of July, and a ‘hearing’ at which these submissions can be discussed with Mr Justice Charles. Only if the Judge is satisfied as to the improvements in the management of QROPS, will permission be granted to withdraw, but the Judge also reserved the right to issue a Judgement if he was not satisfied with HMRC’s response.

A considerable number of hypotheses have, and will be put forward as to what this will mean for QROPS, some of them wildly speculative and others more reserved. It’s my opinion, having sat through the four days of hearings, that very little will change on the surface.

What I think might happen, although it will not necessarily be part of the published documents, is that any transfer to a QROPS pre 24th September 2008, when HMRC changed the wording on the website, will not be subject to any "un-authorised payment charges", even if the scheme in question is removed from the QROPS list retrospectively. This would be subject to there being no evidence of dishonesty, abuse or artificiality. This will lead to assessments on a number of other cases being withdrawn.

However, this will not be a general amnesty for pre Sept ’08 transfers. Those set up on an employer sponsored basis, could still fall foul under artificiality. Unless there was genuine employment, there is very little to stop HMRC pursuing these cases.

Post Sept 2008, whilst it could still be argued that the impression given by HMRC was of "approval" by publishing a list, the pre-amble may well now be sufficient to allow retrospective removal and the raising of assessments.

From April 6th 2012, HMRC introduced new administrative and legislative changes, which in its own words are intended to change the expectations and understandings of a prospective investor. It may be worth summarising these changes as follows:

  • The Finance Bill 2013 contains amendments to Section 169 and introduces a new subsection (4)
  • Formal process for temporarily removing schemes from the QROPS list.
  • Strengthening of the preamble on the HMRC website
  • Improved monitoring SI2012/884
  • Extension of Schedule 36 of Finance Act 2008 to include QROPS or former QROPS
  • Extension of Penalties for former QROPS who do not comply or fail to provide prescribed information.

It might help to highlight some to the phrases in the new preamble:

If a scheme has been included on this published list in circumstances where it should not have been included ….. any transfer that has been made to it could potentially give rise to an unauthorised payment charge.

The purpose of this list is merely to help UK registered pension schemes carry out their due diligence ….

…. Nor should it be taken that any scheme featured on this list is approved or backed by HMRC

In conclusion, what is going to happen?

In my view, there are two potential scenarios:

a) Justice Charles will issue a Judgement on the Group Litigation bought by ROSIIP members. Something I am sure HMRC will try and avoid, as it will set a precedent, and be quite damaging.

b) HMRC will convince Justice Charles of the improvements they are making in the management of the QROPS market, and demonstrate this. 

Irrespective of either (a) or (b), HMRC will undoubtedly look to regain the authority, and one should expect to see some decisive action. The removal of Hong Kong was just a start in what we believe will be a general tidying up of the industry.

What does this mean for advisers?

The onus will be put further onto you, to do your own full due diligence on not only the provider, but also to ensure that in your own mind, the schemes you are looking at, comply with the Statutory Instruments, but that the tax and regulatory status of the overseas jurisdiction in question, also meets the intent of HMRC’s legislation.