What is a QNUPS? – Qualifying Non-UK Pension Scheme
UK pension legislation allows expatriates to plan for their retirement in a tax-efficient way through the use of Qualifying Non-UK Pension Schemes, otherwise known as QNUPS. A QNUPS can offer significant investment and savings opportunities for British nationals, whether they are expatriated or still resident of the UK.
The sections outlined below examine the origin of QNUPS in greater detail and the processes involved in establishing such pension schemes. Topics include the following:
- Definition of a Qualifying Non-UK Pension Scheme
- Who is eligible for a Qualifying Non-UK Pension Scheme?
- Assets which can be transferred
- Appropriate jurisdictions
- Plan structure
- Tax planning opportunities
- Administration Process
1. QNUPS definition
QNUPS (Qualifying Non-UK Pension Schemes) were first developed in 2004 as a vehicle for residents to hold non-UK pension assets. A QNUPS is a pension scheme based outside the UK that qualifies for an exemption from UK Inheritance Tax (IHT). Qualifying Non-UK Pension Schemes were created as a part of the Inheritance Tax Regulations 2010:
QNUPS are open to UK residents, including those permanently residing in the UK, and overseas residents. They can also accept non-UK pension plans, depending on the type and rules of the scheme. QNUPS thus add to the armoury of potential retirement planning solutions available.
2. Who is eligible for a QNUPS?
Given the UK Inheritance tax exemption, a QNUPS is likely to be particularly attractive to UK-domiciled individuals or anyone with UK property to invest in a pension scheme. This type of arrangement may be useful for an internationally mobile individual looking for a tax-efficient retirement plan in a politically stable and safe jurisdiction.
QNUPS can also provide attractive pension planning options for non-UK resident and non-UK domiciled individuals who may decide to move to the UK or UK expats who may wish to return to the UK in the future.
3. Assets which can be transferred into a QNUPS
The QNUPS is usually funded by cash contributions or the transfer of existing assets to the plan. Most assets other than UK tax-relieved pension plans can be transferred into these schemes. These include cash deposits, equities, investment funds, corporate and government bonds, other securities and property. There is no limit to the amount invested in a QNUPS. However, contributions should be in keeping with accepted retirement planning practices and not be excessive relative to the individual’s wealth and earnings.
4. QNUPS jurisdictions
QNUPS are international pension schemes registered in various locations around the world. Consideration must be given as to the most appropriate jurisdiction for establishing the scheme. The benefits offered by the various jurisdictions differ. Some offer a greater degree of tax relief, while others are known for their political and economic stability along with their confidentiality. It is important to ensure that the product and location work in terms of an individual’s country of residence and overall tax planning strategy. Tax implications can reach further than the individual estate as beneficiaries may be charged income tax on the proceeds depending on their personal situation.
5. Plan structure
Most schemes include the option to withdraw benefits as a lump sum and/or annual pension. Lump sums of up to 30% of the fund can be withdrawn depending on the location of the QNUPS. Income and lump sum benefits can be accessed at any time after age 50 (or 55 in some cases) and have to be started by age 75 latest. As there is no requirement to take a traditional annuity for income purposes, individuals can manage their tax affairs according to what works best within their tax planning strategy. For example, if required, income can be drawn down at a minimum level. It should be noted that investments within the scheme grow free of tax. As a result, no internal taxation applies to any investment placed in a plan.
Investment structure
Scheme holders have ultimate flexibility when deciding on their personal investment strategy. Some may wish to self-direct investments into funds, equities, bonds and other securities. Others may prefer to appoint an investment manager to take care of day-to-day management. The scheme’s trustees have an important role in ensuring the member is as protected as possible from unsuitable investments. Occasionally, they will question investment selections if they suspect that there is any possibility of a fund being inappropriate. They do not, however, act as a personal investment manager.
6. Tax planning opportunities
QNUPS were initially designed for UK residents who have reached the permitted limit of their domestic pension contributions. As such, anyone who is already contributing the maximum amount of £40,000* per annum and is also looking to potentially reduce future IHT liabilities can use a QNUPS to provide retirement benefits and at the same time, reduce tax.
Such schemes can be an attractive proposition where someone is either about to exceed the Lifetime Allowance (LTA) or already has a total pension value of £1m+*, as benefits are considered to be outside of LTA legislation. The current LTA tax charge is between 25% and 55% depending on the individual’s situation.
7. Administration Process
On receipt of all application forms and supporting documentation, QNUPS providers usually take 1-2 weeks to set up a plan. Axis Consultants act as the individual’s intermediary and ensure everything goes through quickly and efficiently.
The AXIS Consultants advice process includes the following:
- An initial client consultation which is free of charge, wherein we gather all relevant information.
- Research relating to the most appropriate product provider and territory.
- Report illustrating why a particular product provider and territory is recommended, investment options, dual tax treaty implications and service agreement.
- Implementation of administrative requirements.
- Completion of the QNUPS establishment process.
- On-going service, including administering investment choices, liaising with product providers, and related matters.
* Note: these figures are current at the time of publication