QNUPS, QROPS AND TAX PLANNING
The number and frequency of changes in pensions legislation in the UK over the last 10 years have been staggering and QNUPS and QROPS are just a small part of that. It all began on a fateful day in 2006 designated by the Treasury and politicians, for reasons which have been largely obscured by subsequent events, as “Pensions Simplification Day”. HMRC called it “A-Day” and this was the name adopted by the pensions industry.
The terms QROPS (qualifying registered overseas pension schemes) and QNUPS (qualifying non-UK pension schemes) were introduced by regulations that were made law in 2010 but which had retrospective effect from A-Day. QNUPS are non-UK pension schemes which are marketed as meeting the conditions which qualify them for the exemption from inheritance tax (IHT) provided for in the 2010 regulations. QROPS are a subset of QNUPS which are subject to rather narrower restrictions but are able as a consequence to accept fund transfers from UK registered schemes. Schemes which are QNUPS but not QROPS cannot accept such fund transfers.
Consequently, from a UK tax planning perspective, QNUPS, and to a degree, QROPS, are of some interest. They are essentially a form of offshore trust, but with quite specific rules about how and when pension benefits can be accessed. To comply with the UK tax rules on QNUPS, scheme benefits can be taken no earlier than age 55, with up to 30% of the fund available as a tax-free lump sum and the remaining 70% being required to secure a lifetime income. QNUPS can invest in a wide range of assets that would not necessarily be permitted within a UK scheme and it may even be possible to access cash from a QNUPS before the age of 55 in the form of a loan or loans from the scheme trustees provided that a commercial rate of interest is paid and suitable security is given.
As previously mentioned, QNUPS are exempt from IHT while the assets are within the scheme. As the administrators are not UK residents, they do not generally pay UK capital gains tax on UK or non-UK assets and neither do they pay UK tax on non-UK income. As a commercial arrangement the tax status of which is recognised in legislation, it appears to be generally accepted by HMRC that the anti-avoidance legislation which potentially applies to UK resident individuals setting up non-UK structures does not apply (presumably on the basis of the decision in the case of CIR v Willoughby). There is no specific upper limit on the amounts that can be contributed although HMRC has indicated that they will seek to apply the transfer of assets abroad anti-avoidance legislation in circumstances where the sums invested in QNUPS seem excessive. One could forestall such arguments by obtaining an actuarial calculation of the amount of contributions necessary to secure a retirement income which is commensurate with your personal circumstances. It is in any event arguable that, provided a QNUPS is established in an EU jurisdiction, the anti-avoidance legislation cannot be applied by HMRC as a consequence of the EU treaty freedoms.
A QNUPS may very well be an appropriate tool in a number of pension, investment and tax planning scenarios. Please get in touch with us if you would like to explore how they might fit into your overall tax and investment planning.