QNUPS – Qualifying Non-UK Pension Schemes

Qualifying Non – UK Pension Schemes were introduced through a change in legislation by the UK Government on 15th February 2010. When the UK Government embarked on its major overhaul of UK pension legislation – often referred to as “A” Day - the intention had been to ensure that certain non-UK pension funds remained exempt from UK Inheritance Tax but the drafting of the earlier legislation was ambiguous in that respect.

HMRC confirmed this was an error and the legislation was updated in the Finance Act 2008, followed by The Inheritance Tax (Qualifying Non – UK Pension Schemes) Regulations 2010. These rules clarified exactly which pensions are exempt from IHT – and introduced QNUPS. As QNUPS are not registered pension schemes different rules can apply to the investments held within the fund and terms relating to the drawdowns. They provide a highly flexible and tax efficient pension structure that can supplement existing pension arrangements while remaining entirely separate and distinct. The schemes are genuine pension arrangement and as the transfer of assets is out of post-tax earnings or from personal capital, there are no reporting requirements to HMRC. 

Who should take out a QNUPS?

If your clients are UK resident or UK domiciled and non-resident, and have substantial assets/potential assets then a QNUPS may be beneficial. It also has the following uses:

• Clients that have maximised their UK pension limit and are looking for an alternative pension vehicle to provide for their retirement
• Clients who are looking to invest regularly more than their UK annual allowance
• Clients wishing to setup an ancillary Recognised Overseas Pension to complement their existing pension

What are the Benefits?

• No limit on contributions or fund size
• No maximum age at which you can invest into the plan
• Plan proceeds paid out gross and not liable to Guernsey Tax* or UK Inheritance Tax whether UK domicile or deemed UK domicile
• UK, S58(1) (d) IHTA compliant and such settled property is not deemed “relevant property” for IHT purposes therefore not liable to the normal Inheritance Tax Discretionary trust charges (periodic or exit)
• Discretion over distribution of residual fund upon death of member
• Greater flexibility on drawing benefits
• Assets held in the plan grow free of taxation-except for withholding taxes
• Loans may be made to the members, up to 30% (25% if UK resident) of the value of the pension fund, as long as they are under commercial terms. Upon retirement, if a loan has not been taken, then a lump sum commutation of up to 30% (25% if UK resident) may be taken.

*Unless you become a Guernsey resident tax payer

What Assets can be transferred into the Pension Scheme?

There is considerable flexibility on the assets and value of assets which can be transferred into the QNUPS. This can include cash, unlisted shares, share options, securities, commercial/residential property (excluding your principal residency) and chattels/works of art etc.

What happens upon Retirement?

An individual may start to draw an income from the age of 55 and must draw an annuity or income drawdown before the age of 75 years. There is considerable flexibility in how this income can be taken, but 70% of the pension fund must be available to provide an income. 

Summary

For individuals reviewing their financial arrangements for retirement, the QNUPS may well provide possibilities to supplement already existing schemes with opportunities for effective estate planning. QNUPS are pension plans and should be used for providing retirement benefits only, and as such HMRC are satisfied to accept them under their pension regime.

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