QNUPS (Qualifying Non UK Pension Scheme) are Non-UK Pension Schemes that provide both Inheritance Tax protection and gross growth within the fund.
QNUPS came into being as a result of the QROPS( Qualifying Retirement Offshore Pension Scheme) regime, though there are some important differences and uses for a QNUPS.
As with a QROPS, the overriding purpose for these schemes is to provide a pension at retirement. However, these are primarily aimed at UK domiciled individuals, whether or not they live in the UK. The people that would most benefit from QNUPS own substantial assets, have a large potential Inheritance Tax liability on their estates and are looking for a tax effective environment to improve investment returns.
Additional advantages include, amongst others, protection against UK pension sharing orders upon divorce.
What are the options for funding a QNUPS?
There are no restrictions by HMRC ( Her Majesty’s Revenue and Customs) on the level on contributions, though these should be from individuals and not their employers. The assets that can be transferred into a QNUPS include cash, investments/family wealth and commercial and residential ( excluding primary residence) property. Whilst contributions are not limited, people must ensure that they have sufficient remaining funds to live on until retirement.
The possibility for property, as a contribution, should be of interest to real estate professionals that have UK domiciled clients with property portfolios, wherever that property is situated. This gives the investor an opportunity to review the property portfolio to see if it is providing the best returns for long term growth and income, and make appropriate changes.
Options at retirement.
Income from the fund can be accessed from the age of 55 as well as a lump sum of 25% ( tax free depending upon residency status at the time). Prior to the age of 55, QNUPS can offer a loan facility for commercial purposes at commercial rates.
Inheritance Tax ( IHT)
Whilst the primary purpose of QNUPS is provision of retirement, the IHT savings are significant for UK domiciled expats.
Ordinarily, substantial contributions into trusts ( a QNUPS is a trust) are subject to the 7 year qualification rule as a PET ( Potentially Exempt Transfer)*. Not only do the IHT benefits take 7 years to kick in, individuals cannot normally then have any personal benefit from the trust.
No such issues with QNUPS, the contributions are deemed to be outside of the estate straight away, whilst leaving the individual with the benefit of an income from the age of 55.
If we look at a simplified example, we can see the benefits. If a UK domiciled individual has a property portfolio of 500,000 Euros and transfers the property into a QNUPS then, in the event of death, the immediate IHT savings are 200,000 Euros. Whilst there may be costs ( property taxes and income taxes, real estate fees etc) for transferring property, the potential savings for the family could make such costs pale into insignificance.
The death benefits are paid out to the individual’s heirs, free from tax. There is no need for separate probate and the fund is normally available immediately.
To summarise:
QNUPS, just like QROPS that preceded them, are-
1.An excellent retirement planning tool
2.An effective vehicle for IHT planning
3.An excellent way for protecting real estate assets
4.Fully HMRC recognised international scheme
A fine is a tax for doing something wrong. A tax is a fine for doing something right. Author Unknown
Christopher Lean is a consultant at Square Mile Financial Services and an Associate of the Personal Finance Society ( Chartered Insurance Institute).
* Potentially Exempt Transfers (PETS)
Most gifts, which are not exempt, are usually Potentially Exempt Transfers (PETs) if made to an individual or certain types of trust. For the PET to become totally free of Inheritance Tax you would need to live for seven years after the date of the gift, and not retain any interest in the gift (i.e. you cannot gift your house but continue to live in it, as this would be a gift with reservation).
