If you are a UK Domiciled person, a Qualifying Non-UK Pension Scheme (QNUPS) is not a specific type of pension, but a set of rules that exempt certain overseas pension schemes from UK inheritance tax (IHT), unless there is evidence of deliberate tax avoidance. The legislation that created QNUPS was actually passed in 2004 following the EU pensions directive in 2003. This legislation came into force in April 2006, better known as A-Day. However QNUPS were not available until HMRC passed the required accompanying legislation and this was finally completed in February 2010.
Many discussions with regards to pension planning include QROPS, which is basically a qualified UK pension transfer facility - the proceeds come from an existing UK pension whereas QNUPS is a quieter cousin that can have proceeds from all other sources.
Who can have one? QNUPS is available to both UK residents and non-UK residents, and can be a useful wealth preservation tool to reduce exposure to UK Inheritance Tax (IHT).
Is QNUPS right for me? A QNUPS could be an excellent choice for saving for your retirement if:
· you are a UK resident wishing to supplement your UK pension fund, but you already contribute the maximum annual allowance for UK pension contributions (currently £40,000 for the 2016/17 tax year if no allowance restrictions are in force) and have used up any unused annual allowance from the three previous tax years.
· you are a UK resident and your total UK pension fund is already close to, or with growth may exceed, the lifetime allowance (£1 million for the 2016/17 tax year) and you want to add to your pension fund without incurring a tax charge (lifetime allowance charge) when you take your UK pension; and/or
· you want to supplement your UK pension but cannot contribute to your UK pension because you do not have sufficient relevant UK earnings; and/or
· you live and work outside the UK and you and/or your employer wish to contribute to a pension – particularly if you’re working in a country that does not offer formal pension arrangements.
Why can’t I just choose any overseas pension and call it QNUPS? To count as QNUPS, an overseas pension must meet certain rules set by the UK’s HM Revenue & Customs (HMRC). Broadly, these rules require that the pension scheme must be:
· established outside the UK
· open to local residents (for example, Guernsey residents for a Guernsey QNUPS)
· recognised as a pension in local law
· recognised for tax purposes under local tax law.
Some overseas pension schemes may meet QNUPS requirements by way of provisions that at least 70% of the fund will be used to provide you with a pension for life, and/or provisions that you will be unable to access your retirement benefits before the UK normal minimum pension age (currently age 55).
Do I need to choose a QNUPS from the country I’ll be living? No – you are free to choose any scheme that is appropriate for your circumstances.
For example, if you are currently living in the United Kingdom, but are planning to retire to Canada, you could choose a QNUPS administered in the Isle of Man (the jurisdiction). However, you should choose your jurisdiction carefully, to ensure that the local rules fit in with your needs.
It’s also possible that the country where you live does not offer pension schemes – in which case you would definitely need to choose one from a different jurisdiction.
How much can I contribute? Unlike a UK pension fund, there are no set limits on how much you can put into a QNUPS, it must simply be considered as sensible for the standard of living you are used to. To ensure this is acceptable we may require the approval of an actuary to calculate the permitted level of contributions. This will help to ensure that HMRC do not view the use of a clients’ QNUPS for the sole purpose of IHT avoidance, as if this was deemed to be the case, the member could suffer a lifetime IHT charge on transfer to the QNUPS.
When can I take my pension benefits? The minimum retirement age will be set by local pension rules. A scheme might meet QNUPS requirements by way of provision in its rules that pension benefits cannot be accessed until the UK normal minimum pension age (currently age 55). Certain jurisdictions allow as young as 50. There is no obligation to retire until the age of 75.
Will I pay tax on my pension benefits? The amount of income tax you pay on your benefits will depend on the underlying investment vehicle you choose and where you live. You can take 30% of the maturing value tax-free and your income, depending upon where you live would be assessed accordingly.
What tax benefits are there? Whilst the money placed in a QNUPS will not attract tax relief on the contributions, it will be considered outside of the estate for IHT purposes, in much the same was as any other pension scheme.
Pension schemes do not attract capital gains taxes and can offer tax-mitigating income, depending upon where you reside.
Where can I retire? Income can be drawn from a Qualifying Non-UK Pension scheme at the age of 50. There is no obligation to retire until the age of 75 as opposed to many schemes that force you to take benefits from age 65.
Trustees Are Free From Restrictions: HMRC often imposes restrictions on retiree pensions. With the Qualifying Non-UK Pension Scheme, appointed trustees can manage a retirement account without restrictions. No reports or details will have to be supplied to governing bodies in most instances.
No Significant Rules: Many retirees can designate a beneficiary and have the funds distributed posthumously without significant rules and regulations. This is a relief to many retirees who do not want their death to be a burden on their beneficiaries i.e. pay death duties.
Retiree Payments in the Currency of Choice: Assets and investments may be taken in any currency of choice. The platform is generally open architecture so lots of freedom on choices.
Flexible: Retirees have the opportunity to gain significant tax bonuses. Even a 90 year old retiree could benefit from the pension scheme by investing large sums of money into an account for the tax advantages. Since there are no limits to the contribution, many retirees avoid taxes. Retirees save on wealth taxes, succession taxes and UK inheritance tax.
How much income can I receive? If you are a UK resident, you should contribute the maximum you can into your UK pension to receive the maximum relief. If this does not leave you with enough income to live off, you need to consider additional sources. QNUPS does not limit how much you can take as an income and only taxes on 90% of the revenue received so you get a 10% discount.
NB: your QNUPS should look, smell and taste like a pension i.e. you pay in consistent amounts to generate a future income! Whilst QNUPS offers many benefits including potential vast savings on estate taxes, the concept of the structure is to provide you with a lifetime income … and not just to avoid taxes.
Please feel free to contact me with any inquiries and/or to find out if you have enough going away for your own retirement.