by Mike Bear (Scottsdale Overseas)

The publishing of the UK budget on March 22nd 2012 has answered many of the questions raised by the issuance of the draft paper on December 6th 2011. As had been expected, all of HMRC’s proposals from that consultation paper have now been ratified by this new legislation. The new conditions which are to be met post April 6th, 2012 are namely:

• Equal tax treatment of residents and non-residents alike.
• Any distributions from the scheme must be reported for 10 years following the date of transfer.
• Clarification that the pension commencement lump sum (PCLS) withdrawal is limited to a maximum of 30% of the members funds with the residual amount used to provide a life time income.

 Equalised Tax Treatment

The equalisation of tax treatment between residents and non-residents is a preventative measure to stop the perceived abuse of the system by certain jurisdictions. No longer can a jurisdiction rely upon double taxation agreement (DTA’s) provisions to in order comply. This created a challenge for some jurisdictions which like the UK - only taxed local residents. From April the pension income of both residents and non-residents must be taxed equally.

QROPS offer many advantages and the additional flexibility is the overwhelming reason why many people decide to transfer their pensions away from the UK. An important factor often overlooked is the tax implications in respect of your pension income. How and where your pension is set up can have a huge impact on the amount of tax you may have to pay.

The taxation of pension income is a complex area especially in Spain; Scottsdale Overseas is ideally placed to help.

Ten Year Reporting

The increased reporting period for scheme trustees from five to ten years is another HMRC measure aimed at stopping the abuse of the QROPS (Qualifying Recognised Overseas Pension Scheme) legislation. It is important to note that this change should not be conflated with a client’s non-resident tax requirements which remain unchanged. In practice this means that any payments from the QROPS will now be reported for the first 10 years the pension is in force.

The non-residency rule after 5 years still applies, anyone who has transferred to a QROPS and has been non UK resident for more than 5 years will be able to pass the fund to their beneficiaries as a lumps sum without being subject to the 55% unauthorised payment charge applied to UK pensions.

Pension Commencement Lump Sum

The option of taking 100% of the pension as a lump sum payment is now prohibited. Under the previous legislation this practice was widely promoted by some advisers and jurisdictions such as New Zealand benefitted greatly. There has always been a question mark as to whether the practice adhered to the ’spirit of the law’ and the uncertainty has now been removed by HMRC. Any QROPS from April will only be able to offer a maximum of 30% as a commencement lump sum with the remaining 70% of the fund used to provide an income for life.

Guernsey

Guernsey has been hit hardest by the changes; Guernsey amended its domestic pension law to introduce new provision to comply with the new legislation. However HMRC have failed to recognise the new pension scheme as it contravenes a clause in their most recent QROPS guidance, which states that any country or territory which “makes legislation or otherwise creates or uses a pension scheme to provide tax advantages that are not intended to be available under the QROPS rules” would find such schemes “excluded from being QROPS”. Guernsey pension providers will no longer be able to accept transfers of UK pensions unless the applicants intend to reside in Guernsey. For those people who already have a Guernsey QROPS their pensions will be unaffected but they will not be able to transfer any additional UK pensions to the current scheme.

Malta

Malta is set to become the most popular QROPS jurisdiction despite being a relative new comer to the QROPS market. Malta has an advantage over other jurisdictions as a member state of the EU and with more than 50 double taxation agreements in place. From an EU legislative position, Malta clearly has a strong argument, in addition, its low-tax environment and remittance tax basis is accepted within the EU, giving it an economic, political and legislative advantage.

Interestingly, Malta is not actually prescribed to meet the 70% rule either. This is because it qualifies as a QROPS jurisdiction by virtue of its full EU membership. Hence the jurisdiction has scope for significant innovation around pensions.

QROPS offer many advantages and the additional flexibility is the overwhelming reason why many people decide to transfer their pensions away from the UK. An important factor often overlooked is the tax implications in respect of your pension income. How and where your pension is set up can have a huge impact on the amount of tax you may have to pay.

The taxation of pension income is a complex area especially in Spain; Scottsdale is ideally placed to help. Scottsdale Overseas enjoys a close working relationship with Scottsdale Consulting; the highly respected UK based Independent Financial Advisers. This liaison means that you can be confident that your adviser understands UK pension tax and the taxation of pensions in Spain. We offer impartial advice as to whether or not a transfer to a QROPS or other overseas pension is the most appropriate way to maximise your pension income.

Whilst tax is unavoidable, reducing the amount of tax paid will allow you to enjoy a better income from your pension. Our aim is simple; to guide you through the financial implications, opportunities and pitfalls that living abroad brings.

For more information visit www.scotsdaleoverseas.com

This has pushed the co-operative wall total up to a mighty £11455 breaking the £11k barrier, and pushing us on towards the milestone £15k.

So which was your favourite charity this time?

Oxfam - in support of Jarrad Hubble’s London Marathon entry - £239.21
Great North Air Ambulance - £145.92
Daneford Trust - £112.72

Jarrad Hubble’s fantastic marathon run in support of Oxfam came out the clear winner with the majority of your donations. Jarrad ran the marathon in an impressive 4 hours and 7 minutes, congratulations Jarrad.

During May and June we will be supporting:

The British Heart Foundation
Touraid
Chickenshed

Thank you all for reading!

Later this week the ECB are expected to leave interest rates on hold, however Mario Draghi will face tough questions in the press conference on the strategy for Europe amid growing concerns for a growth compact.

Us jobs data will be a main data point to watch this week.  Friday’s non-farm payroll report will form important sentiment for the pace of the US recovery after last month’s disappointing number which followed a good run of jobs data.  The number is expected to be a good number and the feedback on this data will be a key factor for the Feds future strategy-a bad number and we can expect more easing.

In the UK, attention will focus on the PMI data tomorrow and Thursday which will offer a snippet of growth feedback following last week’s preliminary Q1 GDP which came in negative. Again if data proves negative it could trip the Bank of England to pump more QE through the system- possibly at the May MPC meeting.  Elsewhere we have an expected rate cut from the Reserve Bank of Australia tomorrow which could weigh on the AUD.

Next Wednesday the crucial Q1 GDP figure is released. This will decide the short-term path of the Pound, the expectation is for a mildly positive number because of the recent uptick in overall economic data. However worries remain over the construction sector which may have contracted enough in the first few months of the year to drag the overall GDP number into negative territory and confirm that the UK has re-entered a technical recession.

Away from the UK next week we have the Fed interest rate meeting, US GDP, durable goods orders and the Fed Chairman talking so it’s a busy week for America. QE seems to be back on the table now the surge in employment in Q1 has slowed down. The market as ever will be waiting for a further softening in tone; it looks like risk assets will do well, and the US to sell off once more.

So far today in the UK we have seen the UK Jobless Claims figures fall for this first time since last spring. Unemployment fell by 35,000 to 2.65m according the ONS leaving the overall rate at 8.3%. Furthermore we saw voting in the Bank of England for interest rates and QE voting come in at 9-0 and 8-1 to keep rates on hold and maintain the contribution at £3.25bln. Sterling has rallied as a result of these figures and currently sits at 1.2212 against the Euro the highest reading since September 2010. Cable has also risen and is fast approaching the key psychological level of 1.60 currently trading at 1.5979.

In other financial news Warren Buffet has announced he has stage one prostate Cancer which will create further hype around the successor to his Berkshire Hathaway business. As for the rest of this week we are pretty light on data with inflation data in New Zealand, Canada and the Germany of any real significance. Finally on Friday watch out for any press releases from the G20 Finance Ministers Central bankers meeting in Washington.

Coupled with these figures, Greece published its latest unemployment data yesterday indicating a further rise with the overall rate pushed to 21.8% up from 14.8% at the same point last year. Despite the bad news the Euro remains towards to the higher of its recent trading range against the Greenback currently trading in the high 1.31s and Sterling trades just above 1.21 at 1.2104.

So far this morning China has published its latest growth figures revealing the world’s second largest economy has grown at its slowest pace for nearly three years. GDP increased by 8.1% down from 8.9% in the previous quarter and below expectations of 8.3%. The numbers are being blamed on the fall in demand for exports from the Europe and the US and consequently we could see risk assets hit hard today.

We have a light day in terms of headline data but So far we have seen German inflationary data which came in exactly against forecast at 2.3%. Later this afternoon we have CPI for the US who are expecting an annual figure of 2.7%. Finally to end the week we have the Michigan confidence figure, which assesses consumer confidence on personal finances, business conditions and purchasing power based on telephone surveys and provides a real time assessment of US consumer sentiment.

The pound on the other hand is going from strength to strength and has hit a one year high on a trade weighted index- that is the pound as a measure against a basket of currencies.  The pound initially edged higher against the euro in line with euro concerns and improved economic numbers from the UK.  The pound however has not managed a sustained push higher against the euro. This suggests a lack of appetite to sell the euro too much as the market adopts a wait and see approach to the developments on Spain and Italy.

In other news the yen fell for a second day against the dollar and euro after Bank of Japan Governor Masaaki Shirakawa indicated further easing of monetary policy.  Later today we see further feedback from the US with initial jobless claims and the producer price index- with markets in risk off mode and following weaker than expected payroll numbers last week a good set of numbers is hoped for.

There are several bond auctions in the Euro-zone today; Germany and Italy tap the well for smallish amounts of €3 billion and €5 billion respectively. There will be strong demand for German debt as ever, but with the problems from last week’s Spanish auction fresh in the mind today’s offering from Italy will be closely watched for overall demand and also the price the market charges the Italian government. The ECB meeting is on Thursday this week where it is unlikely that they will make any changes to interest rates or the special liquidity measures.

With risk sentiment waning, extra importance will be given to the Chinese GDP data due on Friday. The data is expected to be around the magical 8% level, as it always seems to be. Anything lower would be a real shock and compound the bearish trend we’ve followed this week. In the US Friday also sees the UoM confidence survey, expected to show a slight improvement from last month, and the CPI figure which is expected to show inflation remains low and stable.

Over to Europe and Greece’s economic worries continue to dominate headlines with latest industrial output data falling again according to figures released yesterday. Coupled with weak output, unemployment data due out on Thursday is expected to indicate another rise adding to the fears over Greece’s ability to recover. Furthermore Portugal was forced to go cap in hand to the European Central Bank (ECB) borrowing over €56bn last month. Despite borrowing costs falling during March from a high of over 14% to just over 11%, these gains have now been given back based on this news and the yield on 10 year debt currently sits at 12.2%.

Trade figures released from China overnight revealed a mix picture of growth as exports grew higher than expected suggesting global demand could be increasing. Conversely imports grew at 5.3% much slower than the 39.6% figure last month and leads to questions about slowing domestic demand. The recent figures will help to reduce fears about China’s reliance on exports with the slow down in activity from Europe and the US.

As we look ahead to this four day week due to the UK bank holiday, we are light on headline data. However key events are the ECB monthly report and UK trade balance figures on Thursday morning. And to end the week on Friday we will get inflation reports from Germany and the US where we expect to see YoY figures of 2.3% and 2.7% respectively.

UK services PMI made it three in a row better-than-forecast data releases, following on from manufacturing and construction earlier in the week. The data paints the UK economy in a positive light, but it is important no to get carried away. The OECD thinks the UK has already re-entered a double dip recession and we need to wait for the Q1 GDP figure later this month before we get a clear picture of the UK economy. Sterling certainly likes the data, rising against both the Euro and Dollar in recent trade.

Markets will be winding down over the coming days, but the remaining things to watch for are the Bank of England meeting tomorrow and the Non-farm payrolls on Friday.