Qualifying Non-UK Pension Schemes (QNUPS)
Technical & Historical Background
What is a QNUPS?
What are the reporting requirements?
What is the tax position on contributions?
What level of contribution is acceptable?
What is the income/capital gains tax position within the fund?
What can I withdraw from my Retirement Scheme?
What is the income tax position on withdrawals?
What is the position on death?
Other points to consider
Double Tax Treaties
QROPS baby brother QNUPS, the transferring of investment assets out of the UK, is arguably one of the most exciting investment and tax planning platforms seen in decades.
With the current HMRC Consultation paper on property, CGT and mansion tax proposals and with the recent introduction of Annual Charges, QNUPS has taken on an even greater emphasis in retirement fund and wealth preservation planning. QNUPS arguably could signal the death throes of the Offshore Discretionary Trust.
Qualifying non-UK Pension Schemes (QNUPS) were finally confirmed on 15th February 2010 via an HMRC issued ‘Statutory Instrument SI 2010/51’, following the insertion of a new clause from the Finance Act 2008, (“qualifying non-UK pension scheme” inserted into IHTA 84 by FA2008-S92-Sch29-para 18)
With effect from this date it became possible for individuals to make post tax contributions to a QNUPS, providing themselves with a fund which will grow free of Income & Capital Gains, providing additional pension benefits, as well as protection from Inheritance Tax.
A QNUPS is an overseas unapproved retirement fund. To qualify, an overseas ‘pension’ should:
- be established in a country or territory which regulates pensions schemes
- not provide benefits to the member before the normal retirement age (circa 50)
- be ‘recognised for tax purposes’ in the country or territory that it is established
- be open to residents and non-residents in the country or territory in which it is established
A QNUPS must also satisfy the definition of a pension scheme set out in Section 150 of Finance Act 2004 (FA2004).
A QNUPS should also fall within the requirements set out in section 271A Inheritance Tax Act 1984 (IHTA) and Inheritance Tax (Qualifying non-UK Pension Schemes) Regulations 2010 (SI2010/51).
A QNUPS unlike a QROPS has no reporting requirements to HMRC. Having not sought approval from HMRC and not being in a position to accept UK pension funds, the only reporting issues to be considered would be the domestic ones in the territory in which it is established.
From a purely UK perspective, contributions to QNUPS generally will be made with post-tax assets, either income or capital.
There should be no CGT issues where contributions are made from cash. Transfer of actual assets however, could trigger a taxable gain.
Generally no IHT charges arise on transfer of assets by a member. To the extent that there is any reduction in the value of ‘the estate’. Section 10 IHTA operates to prevent a transfer being a transfer of value where it is “not made to confer any gratuitous benefit”.
There are no specific guidelines as to what is deemed reasonable, but when looking at a level of contribution, HMRC will look at what would in the normal cause of events be ‘usual’.
If funding is disproportionately large, then it would suggest to HMRC that avoidance of taxation was the purpose. Income and gains may then be subject to anti-avoidance measures under Section 261 Income Tax (Trading & Other Income) Act 2005 (“ITTOIA”), section 720 Income Taxes Act 2007 (“ITA”) and Sections 86 &b 87 Taxes of Chargeable Gains Act 1992 (“TCGA”).
It is therefore very important that either an actuarial report or advice from
a suitably qualified independent financial advisor or accountant is obtained before a QNUPS is created and funded. Evidence based contributions are best.
In most jurisdictions where QNUPS will be set up, there are no income or capital gains taxes on accrual within the fund, however, this is jurisdictionally dependent.
Transfers by a member to a QNUPS should not be caught by the Income Tax anti-avoidance provisions provided that the scheme operates as a true pension fund, and is not over-funded.
At retirement age the QNUPS will pay up to 30% as a commutation of the fund, and the residual fund will be used to provide an income for life. Benefits must start to be drawn before the age of 70 – unless the funds fall under Maltese legislation in which case there is no commitment to take proceeds by then.
A QNUPS is a pension fund and as such is designed to provide you with an income in retirement. Failure to do so, or take only a nominal income, may involve tax implications as described above.
Note: Advice should be sought from your adviser as to the tax implications on payment of benefits in your country of residence.
Trustees confer benefits in accordance with the Trust Deed & Rules. If the member is UK resident, the taxation will depend upon classification by Section 393 ITEPA 2003.
‘Relevant benefits, non-relevant benefits and excluded benefits”.
If the member is non-Uk resident, tax may be payable in their jurisdiction of residency.
Please consult your advisor for more details on your personal circumstances.
Benefits on death should be treated as ‘excluded benefits’ for Income tax purposes, and there should be no IHT to pay on funds which, following the death of the member, have not been spent on benefit to the member, provided that there is no choice for the member to receive a pension or instead pass on the value as a death benefit.
The Trustees’ preference is for a client/adviser to appoint a fund/investment manager to take safe custody of the assets and to act on the investment mandate laid down by the client. This will allow investments to be managed within the following categories:
- Stocks, bonds, alternative investments, hedge funds, structured products & deposits
In addition the following asset classes are permitted:
- Private Equity – held indirectly through a separate wholly owned offshore company
- Commercial Real Estate – held indirectly through a separate wholly owned offshore company or LLP
Assets can be held in any denomination.
Please be aware that assets that cannot be liquidated to provide you with an income or physical assets that do not provide a regular income stream, will almost certainly invalidate your scheme for IHT purposes.
Depending upon the member’s country of residence, it may be beneficial to have your QNUPS in a jurisdiction which is
protected by tax treaty. Not all countries recognise pension fund structures in non-tax treaty jurisdictions. Malta is a prime example of such a jurisdiction
This summary is of a general nature only and is not intended to be relied upon as, nor to be a substitute for professional advice, or used in formulating any business decisions without first seeking such advice. No liability is accepted for any consequences arising from any transactions embarked upon in connection with this summary.
The benefits referred to in this summary may vary according to residency and domicile. Different rules apply to different individuals and employers.
No warranty regarding the appropriateness of investing in a QNUPS trust is being given and none of the above comments should be constructed as tax advice.You should always take independent tax advice, as your personal circumstances may mean the above comments should be constructed as tax advice. You should always take independent tax advice, as your personal circumstances may mean the comments above do not apply to you.
Transferring Assets Abroad
A QNUPS transfers investment assets abroad. Not owner-Occupied residential property; property must be let i.e.an investment. But by creating Offshore trusts in jurisdictions such as Guernsey and Malta, investment portfolios can become hugely tax-efficient. Build-up your UK wealth offshore & tax-free in an HMRC devised, designed & regulated QNUPS. Open to UK Dom/Res’ & non-Doms alike. These are not quasi- tax schemes which are currently subject to Treasury scrutiny. QNUPS are HMRC devised, designed, recognised and fully approved. This is legal, HMRC-designed and approved tax Deferment
By creating a QNUPS offshore trust legal tax deferment can be immediately achieved. Offshore trusts stimulate UK tax-free wealth creation .The ever-decreasing UK pension limits are circumvented. QNUPS trusts are open to UK Res’ & Non UK residents enabling the avoidance of CGT on property sales, outside the scope of future Mansion Tax & with decreased Income Tax on rental income. Place your assets & your pensions outside Inheritance Tax.