Treasury urged to close tax loophole exploited by rich pensioners

The pressure is on for the government to close a tax loophole allowing
wealthy retirees to go abroad with their UK pension and live tax-free.

New pension rules which went live in April 2006 allow the rich to transfer
their pension pot overseas and after five years convert their fund into cash,
often tax-free, writes
The
Guardian.

The Isle of Man, Guernsey and Jersey appear on an approved list of
destinations for
UK pension transfers, alongside Switzerland, Australia and New Zealand.

Ministers have approved hundreds of applications from financial advisers

to take their client’s retirement funds offshore under the Qualifying Recognised
Overseas Pensions Scheme (QROPS) rules. Pension experts claim over the next few
years thousands of wealthy people could be encouraged to exploit the rules.

It’s estimated within a few years the loophole could cost the exchequer
hundreds of millions of pounds as increasing numbers escape paying UK tax rates
on their pension income.

Ros Altmann, an independent pensions consultant said wealthy individuals, who
under UK rules benefited from tax-free pension savings, were exploiting a
loophole that allowed them to reduce the amount of tax they pay on their
retirement income or not pay it altogether. Other benefits include an
opt-out on buying an annuity and escaping inheritance tax.

In April 2006 the Treasury simplified the tax structure of UK pensions,
sweeping
away age-related savings rules with a more generous annual ceiling of
pounds £215,000, now £235,000, that can be put into a pension tax
free; five times the previous limit. A 50% tax charge would apply to
income from savings above a fund cap of £1.65m. The reforms, branded
a ‘fat cats charter’ at the time, were budgeted to cost pounds 250m a year

to fund.

A spokesman said HMRC would monitor foreign jurisdictions to make sure they
complied with basic UK pension rules and were no more attractive, from a tax
position, than remaining in the UK.