Qualifying Non-UK Pension Schemes (QNUKPS)

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Qualifying Non-UK Pension Schemes (QNUKPS) were introduced by HMRC through a statutory instrument which came into force on 15th February 2010. A QNUPS is a retirement trust or pension which meets a number of criteria. Should the criteria be met by a scheme then any payments into the scheme or on the death of the pension holder it will be exempt from UK IHT.

QNUPS will be particularly attractive to non-UK residents who want to mitigate local death taxes (and potentially wealth taxes) in the country in which they are tax resident and UK IHT should they be UK Domiciled, non-UK Domiciled but may return to the UK at some future point or unsure whether they are non-UK domiciled or not.

Date: 15th February 2010

The key benefits of QNUPS are -

  • Contributions into the scheme can be from any source
  • There is no maximum age in for making contributions
  • There is no limit on how much can be paid in
  • Assets within QNUPS will roll up with out liability to tax
  • Flexible levels of income can be withdrawn
  • A lump sum of up to 25% of the fund can be withdrawn
  • There is no liability to local tax in Guernsey
  • On death the trust assets will be exempt from Succession Tax and Wealth Tax in many countries (particularly France and Spain)
  • On death the trust assets are exempt from UK IHT
  • Income from the scheme can be structured as an annuity if the local tax rules mean that this is more tax efficient
  • On death the trust assets will not be caught by Succession Law
  • There is no scheme reporting by the trustees to HMRC
  • 100% of fund can be passed to heirs on death

 

Taking benefits
As a QNUPS is a pension scheme members are entitled to withdrawal pension income or a cash lump sum and a pension.

The options –

  • Benefits can be taken from age 55 (after 6th April 2010)
  • A maximum of 25% of the fund can be taken as a lump sum. This can be deferred until age 75 or the commencement of income, which ever is the earlier
  • An income can be taken from age 55 (after 6th April 2010) and will be based the amount payable from a single life level annuity or the rates issued by the UK Government Actuarial Department tables (GAD). The GAD rates take into account the age of the scheme member and UK 15 year Gilt yields.
  • Income can be deferred until age 75
  • After age 75, an income must be taken and will be based on either annuity rates or GAD. In exceptional circumstances the Guernsey tax authorities can be approached if the income requirements fall outside of these limits.

 

UK Inheritance Tax ("IHT")
Monies in a QNUPS are free from UK IHT as long as the trustees do not make any payments into the estate of a deceased member. It can go to beneficiaries (wives, children etc) but not to the executors.

Importantly, a QNUKPS is not a settlement for the purposes of the ten yearly 6% charge nor for any 20% or 40% UK IHT charge on monies paid into the Trust. It is specifically exempt from all UK IHT as confirmed by Statutory Instrument 51 issued January 2010, coming into force on the 15th February 2010.

UK Capital Gains Tax ("CGT")
If the Trustees are non UK resident, there's no UK CGT payable.

UK Income Tax ("IT")
There's no UK IT on offshore income but there is UK tax on income arising in the UK such as rent.

UK Tax Reporting
The characteristics of a QNUKPS are identical to a QROPS except that there is never any reporting required by the Trustees back to the UK tax authorities, even if the individual remains UK tax resident. This is so even if the member has monies in the same trust which were transferred from a UK registered pension. It is only in relation to any monies transferred from the UK registered scheme which carry any HMRC reporting rules, and even those fall away when the member is a non UK tax resident and has been so for the five previous years.

Anti-Avoidance
There is a possibility of an attack by the HMRC under section 3 (3) of IHTA 1983. If they can argue that the funds going to a deceased family have increased as a result of an act or remission by the member within two years of his/her death, then they might be able to charge UK IHT. However, spousal exemptions, for example, would still apply.

There's also a possible attack on transfer of assets abroad if the contribution is made by a UK resident in order to avoid tax, but if the main motive can be evidenced that it is to produce an income for retirement, this attack would not succeed.

 

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