New rules clarify pension transfers for wealthy investors

The taxman has published new rules that clarify restrictions on tax relief for high earners transferring pension funds.

The government is proposing tax relief on pension contributions should be withdrawn for high earners from April 2011.

Meanwhile, anti-avoidance measures to stop anyone earning £130,000 or more a year take advantage of the changes.

The current rules allow pension investors to make contributions at the same levels as before without paying any additional tax.

Pension providers have felt the rules were unclear when a pension investor switched their pension to another fund. Some interpreted the guidance as stating the transfer value could include accrued pension relief on contributions while others were not sure.

The new rules come in to force on March 19 and apply retrospectively to April 22, 2009.

They allow anyone leaving one pension scheme and joining another within three months, subject to meeting some technical conditions, to keep any relief on the contributions in their fund.

Pension firms welcomed the clarification of this point, which they describe as small but important.

One of the issues they feared was that transfers to a QROPS could leave pension providers open to penalties if the rules were misinterpreted.

Many high net worth individuals are looking at switching their pension funds from the UK to a QROPS pension to avoid restrictions on pension investments.

QROPS are seen by many as a much more flexible investment and tax option than a UK pension, providing the investor meets all the conditions for opening a QROPS scheme.

The plea by pension providers to HM Revenue and Customs for clarification about anti-avoidance rules shows how complicated pension transfers can be.

QROPS Adviser is a leading financial firm that handles hundreds of transfers from UK pension funds to QROPS pensions a month.

The company has a back-office of highly skilled cross-border tax and pension technicians who are conversant with QROPS rules in many jurisdictions worldwide.

Taking advice from a firm like QROPS Adviser is crucial to a successful transfer because QROPS providers will only allow a transfer if an independent financial adviser has recommended the investment