QNUPS is an overseas pension scheme that shares many similarities with its better known cousin – QROPS (Qualifying Recognised Overseas Pension Scheme), with the key difference that within a QNUPS you can place cash and other assets that are not eligible for UK tax relief.
You may be forgiven for wondering as to why anyone would want to put none tax relieved funds and assets into a pension scheme that will then be governed by more restrictive pension rules? The answer: Inheritance Tax (IHT).
For individuals who have would like to contribute more to their pension funds than the maximum of £40,000 per year currently permitted by HMRC, or for those individuals whose pension contributions are valued at or above the current Lifetime Allowance (LTA), contributing to a QNUPS offers a solution with some attractive benefits.
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 2010.
A 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). with the Lifetime Allowance falling from its high of £1.8 million in 2012 to just £1 million from 6th April 2016, more and more individuals will find that their retirement pot is not sufficient for them to maintain their lifestyle in retirement.
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.
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.
Within a QNUPS you can invest in a wide and diverse range of assets, far greater than permitted in a normal UK pension. For example within a QNUPS you can invest in residential property, and make use of features such as the ability to make loans to members.
Like other pension schemes such as QROPS, a QNUPS must fulfil certain conditions. The scheme must be used to provide an income upon retirement and have the same retirement age as of that which applies in the UK. It must be recognised for tax purposes in the country it is registered, and also be open to local residents in addition to non-resident members.
A common problem for many expatriates that frequently move countries and stay living abroad for long periods of time is that they often neglect contributing to a pension plan. They may be reluctant to contribute to restrictive local schemes or perhaps work in tax free countries such as the Middle East. Rather than creating pension plans that have to funded in a single country, and then restricted by that country’s pension legislation, a QNUPS will offer a internationally portable retirement plan that can be contributed to, and accessed from, anywhere in the world.
Whilst QNUPS can offer benefits when used appropriately , this is a complex area of financial planning and it is imperative you seek advice from a specialist before making financial decisions that could have far reaching implications. For a free financial review of your retirement planning or wealth preservation needs, contact us today and speak to an expert.
Richard, 59, is married to Rebecca, 52, and they have four children together aged 24, 21, 16 and 14. Richard has £1,500,000 in a SIPP, which is invested in a balanced portfolio of funds. Richard is already in excess of the Lifetime Allowance (LTA) and faces a LTA excess tax charge on the excess when he decides to take benefits from his SIPP. Richard is concerned that despite already exceeding the LTA, his current pension fund is not enough to sustain the level of living that he, Rebecca and their family have become accustomed to. They currently require close to £150,000 per annum, and because Rebecca has never worked; having sacrificed her own career to raise their four children; they only have Richard’s pension fund.
Richard is a cautious investor and has been advised he can expect a return of 3% per annum from his funds, which will give them an income of approximately £43,000 from his SIPP, after the LTA excess tax charge has been paid.
In addition to the family home, Richard has cash deposits and other investments valued at £3.7 million. He is also concerned that his estate will be liable for considerable inheritance tax (IHT) upon his death.
After receiving independent financial advice, Richard decides to open a QNUPS to provide him and Rebecca with additional provision for their retirement. After receiving approval from an actuary on the amount he can place in a QNUPS to cover the shortfall in income for his retirement, Richard transfers £2 million to the QNUPS. The QNUPS is registered in Malta and the rules there are in line with HMRC requirements. There is also a double taxation agreement with the UK.
The transfer to a QNUPS helps Richard and Rebecca cover a large part of their shortfall for retirement; furthermore through the QNUPS Richard can invest in property, which he feels more comfortable with then being too heavily invested in the stock market. As well as ensuring he has funds for a comfortable retirement, Richard also benefits from the immediate removal of the full £2 million he transferred to the QNUPS from his estate for IHT purposes.