HMRC Loses Singapore QROPS Investor Tax Case

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Written By Saeed Maleki

HMRC Loses Singapore QROPS Investor Tax CaseHM Revenue and Customs has thrown in the towel to admit a humiliating defeat in a London High Court challenge by Qualifying Recognised Overseas Pension Scheme (QROPS) investors.

The investors – who all transferred their UK pensions to a Singapore QROPS scheme called a ROSIIP in between 2006 and 2008 – were disputing the right of HMRC to charge them tax penalties after the tax man decided the ROSIIP failed to meet offshore pension rules.

In excluding the scheme from HMRC’s QROPS list, any pension funds transferred to the ROSIIP were declared ‘unauthorised’ and HMRC was now demanding tax on the switched funds.

The investors claimed this was unfair as the scheme was on the HMRC when the transfer was made and they had no reason to believe they were committing any wrong.

After a four day hearing in the High Court, HMRC decided to apply to withdraw from the case, and in doing so agreed to pay the investor costs and cancel any tax demands.

HMRC last stand

The tactic was seen as a last-ditch attempt by HMRC to stop the court making a judgment, which would become binding case law. This would leave QROPS rules as they stand and other investors with a dispute would have to go to law to challenge any HMRC decision.

However, the judge pulled the rug from under HMRC’s strategy by demanding they issue a detailed QROPS policy statement within 21 days.

If not, the judge will not allow the withdrawal and is likely to find in favour of the challengers.

Any holes he then picked in HMRC policy and procedures would then become case law unless overturned by a higher court.

HMRC lawyers complained that issuing the statement would be prejudicial to a current QROPS review that is underway, on the grounds that any information revealed could help pension liberation firms.

Illegal QROPS

The controversial case reportedly had many holes on the HMRC side and it is rumoured that senior HMRC lawyers advised against proceeding because they believed HMRC would lose.

The Singapore ROSIIP was the first QROPS to be excluded by HMRC.

The provider took HMRC to court over the exclusion twice – in May 2011, when the High Court agreed with HMRC’s assessment that the Singapore ROSIIP failed to qualify as a QROPS and in March 2012, when the Court of Appeal upheld the ruling.

The issue in the latest case is not whether the ROSIIP qualified as a QROPS but that HMRC’s procedure of taxing the retirement savers was wrong when they had no means of discovering the scheme was not legal.