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QROPS & International

Pensions Update

12th April 2018

Aidan McLoughlinDirector | Independent Trustee Company

Aidan.McLoughlin@independent-trustee.com

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About ITC

• Established 1994

• Irish owned – 65 Staff

• €1.6 billion of assets under trusteeship

• 4,000 schemes

• Independent Trustee firm of the Year Award 2014-2018

About ITC International

• Maltese pension provider• Joint venture between ITC & Maltese

Financial Services Company• First company to be approved for both

company & personal pensions• IORP’s approved Pension Master Trust in

Malta• Offers significant possibilities to clients

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International Pension Transfers

QROPS• UK to Malta• UK to Ireland

IORPS• Ireland to Malta

Relevance of Portugal

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Reasons for International Transfers• Consolidation of benefits• Currency exposures• Access to more appropriate tax and benefit structures• Minimising Political and Economic Threats• Facilitate retirement overseas

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Recent Revenue Changes

• Applied form 22 December 2017• To Non-residents receiving benefits from Irish ARF• Traditionally:

• Benefit taxed under PAYE in Ireland • Non-resident also liable to tax on benefits in country of residence• Non-resident could usually apply for refund of Irish tax.

• Now• Benefit taxed under PAYE in Ireland.• Non-resident also liable to tax in country of residence.• Refund of Irish tax is now uncertain.

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New Non-resident ARF rules

• Value in ARF to be divided between capital and income• Income to be further divided according to source• Reclaim of tax only possible if allowed under individual tax

heads of the relevant Double Tax Agreement.• Application is still unclear

• No refund on Insured ARFs• ARFs based on Irish property – no refunds• Equities,? Funds? Overseas Property?

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Conclusion• Existing ARF clients do NOT have the option of transferring

overseas now.• However it may be appropriate to review their investment

portfolio in light of the most recent changes.• For all prospective ARF clients Overseas Transfers Must be

considered• To avoid negligence• To ensure full advice

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Transfers from Ireland• Always allowed under Revenue Rules• Boosted by the IORPs Directive 2003• Eurospeak: Institutions of Occupational Retirement

Provision.• Irishspeak: Pension Funds

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• EU 4 Freedoms• IORPs Directive 2003• Overseas Transfer Regulations SI 716 of 2003• Chapters 13 & 24 of Pensions Manual• O’Sullivan Case

IORPs Transfers

• Transfer to an IORP• ITC has the only IORP approved in Malta

• Member has completed a Bona Fide Declaration• O Sullivan case shows that member can remain in

Ireland• Non-resident ARFs make it essential for those

leaving Ireland

Key Revenue requirements

• Benefits from Age 50• Lump Sum at 30% (for Irish transfers)• No Fund Cap• Flexible Draw down• Benefits on First Death

Malta Pensions

Jack is 40, owns his own business and has an a fund worth €2m.

If Jack waits to 60 his fund could exceed €5m giving EFT of €1.2m.

Jack can reduce tax to €400k by looking to retire at 50 but must sell shares etc.

Pension Planning: €2m Limit

Pension Planning: €2m Limit

• Jack transfers to Malta. • This triggers BCE immediately but no 40% tax as

value doesn’t exceed €2m• Fund continues to grow to €5m in Malta but

excess is exempt from 40% tax• Can receive lump sum of €1.5m at 60• Can set drawdowns to suit his lifestyle thereafter.

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Annie, resident in Northern Ireland has maturing Irish pension benefit worth €300k

If Annie ARFs in Ireland she will suffer PAYE at source

She will need to file a tax return and pay tax in UK.She will then need to claim tax back using Form IC9

from Irish Revenue.December 22 changes – difficulty on tax refunds.

Pension Planning: Non Resident

Pension Planning: Non Resident

• Instead Annie transfers to Malta.• Income in paid gross in Malta.• Annie just files and pays UK tax.

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Nick has received a job offer in California. He has a pension fund worth €500k in Ireland.

Nick is concerned that his pension pot will be taxed in the US. However he cannot transfer it to the US.

Nick transfers his pension pot to Malta.Article 18 of the Malta US treaty provides that the

Income earned by the Malta Fund is only taxed on drawdown.

Pension planning: international executive

Jill, aged 60, has a Pension Fund worth €1m and is retiring to Portugal.

If Jill ARFs in Ireland she will suffer Irish tax at source.

Jill transfers to Malta.Jill receives €300k tax free.She sets her drawdowns at €30,000 per annum.Under the Non Habitual Resident regime in Portugal

Jill can receive this tax free for 10 years.In total Jill has received €600k free of tax.

Pension Planning: Portugal

UK Transfers

• UK to Ireland

OR

• UK to Malta

• Developed Market• Boosted by Brexit

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What is QROPS?

• Qualifying Recognised Overseas Pension Scheme

• Note HMRC only shows ROPS on Register

• Regime operated by HM Revenue & Customs

• Tax free transfer of pension from UK if conditions met

• Foreign scheme must qualify to receive transfer

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What Does ROPS Do?

• Allows tax free transfer of pension out of UK

• Allows UK benefits to merge with other/local benefits

• Provides for local benefit rules to apply• Allows management of £1m life time

allowance• Currently available to anyone based in EU

(including UK)• Not limited to pre-retirement benefits

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UK system similar to Irish Excess Fund Tax.Since 5 April 2016 Limit is £1 million.Limit protection is possible if no contributions

made since 5 April 2016 at £1.25m.Further protection possible at £1.5 million if no

contributions since 5 April 2014.

Lifetime Limit

ROPS Transfers to Date

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Tax year (6th April to 5th April) Number of transfers (1) Total value of transfers (2)

2006 to 2007 2,500 £120 m

2007 to 2008 5,700 £350 m

2008 to 2009 6,100 £360 m

2009 to 2010 6,700 £460 m

2010 to 2011 12,800 £1,360 m

2011 to 2012 16,400 £1,040 m

2012 to 2013(3) 13,400 £1,000 m

2013 to 2014 11,300 £860 m

2014 to 2015 20,100 £1,760 m

2015 to 2016(3) 13,700 £1,500 m

*Advisor Use Only

Scale of ROPS Market

• 120,000 transfers to date• Potential market (2015 EU Commission Statistics):• 3.3 million UK citizens live in EU (outside UK)• 1.2 million EU citizens live in UK• ??? Non citizens e.g. US persons• ??? ROPS available to UK residents who haven’t moved

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Key Rules

• Benefits only available after age 55 Unless due to ill-health or special professions

• Lump Sum limited to 25% of fund

• Member must remain resident in EU for 5 full years after transfer

• 25% Tax charge arises if conditions not adhered to

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2017 Changes • 2017 changes negatively impacted on ROPS transfers to the rest of

the World (i.e. outside EU). Now you can only transfer to a country you are resident in Big problem for jurisdictions such as Isle of Man, Guernsey, Jersey, Singapore etc.

• Transfers within EU unaffected – big boost for Malta and Ireland

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ROPS Market in Ireland

• 411,000 Irish in UK• 255,000 Brits in Ireland• ??? Previous returnees• ??? Other nationalities • 1.5 million in Northern Ireland• Businesses moving for Brexit

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Brexit

• Impact on Service Providers that are branches of UK Companies

• International Transfers Within EU – no need for member to move Outside EU – transfers only to country of

residence

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Mary, age 40, has UK pension worth £950k and has returned to Ireland.

If she leaves it in UK it quickly exceed lifetime limit of £1million.

QROPS Planning: UK Excess Fund Tax

QROPS Planning: UK Excess Fund Tax

Mary transfers to BOB in Ireland. Fund grows to €2.5million at age 60.

UK Excess Fund Tax doesn’t apply.Irish Excess Fund Tax doesn’t apply.Benefit is not included in Irish Threshold

calculation.

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Joe, now aged 59, returned to Ireland age 40.His UK benefit is now worth £1.2 million.His Irish Benefits are worth €1.9 million.His target retirement date is 65.

QROPS Planning: UK Lifetime limit

QROPS Planning: UK Lifetime limit

He transfers both benefits to Malta.No Excess Fund Tax in Ireland as fund is below

€2m.No Excess Fund Tax in UK because he can claim

Lifetime Limit Protection.

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Conclusions

• Overseas transfers have always been part of the pensions landscape

• Boosted by:• IORPs Directive• Greater Migration• Negative Tax Treatment of ARFs

• Advisors Cannot Ignore this area:• Potential negligence• Significant Business Opportunity

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Thank YouQuestions?

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