Qualifying Non UK Pension Scheme “QNUPS”

Are you a UK National, with a Worldwide Estate worth more than £331,000 (exemption limit + annual gift allowance x 2)?

Do you expect enough income in retirement?

Have you allowed for contingencies like stock market uncertainty, State pension erosion, or illness?

Qualifying Non UK Pension Schemes (QNUPS) is legislation defining which overseas pension schemes would qualify for an immediate exemption from UK inheritance tax (IHT).

Key advantages of a QNUPS are as follows:

  • Member’s funds should usually grow in a tax efficient environment boosting investment returns
  • Cash accessibility of up to 30%*, dependent on local rules
  • Only 90% of income likely to be taxable on return to the UK (if applicable)
  • Wide investment choice that includes buying property the donor can live in
  • Benefits from immediate inheritance tax exemption, no need to survive seven full tax years
  • No maximum contribution or lifetime allowance applied

Who would be the ideal client for a QNUPS?

The QNUPS market falls into two main categories; either UK resident* and domiciled, or expatriate UK domiciles, with reasonably high net worth, seeking to maximise retirement income and pass assets on at their death.*

UK resident and domiciled clients may wish to make up pension planning shortfalls if they have already contributed the maximum annual allowance (£50,000). They might also want to stop further contributions to avoid exceeding the lifetime allowance (£1.5M) and avert unwanted tax charges when taking benefits.

A QNUPS might also be an alternative to standard trust planning schemes such as the Discounted Gift Trust which needs a survival period of seven years from transfer to achieve maximum IHT efficiency. A QNUPS, on the other hand, should provide immediate exemption.

To improve IHT benefits further a ‘Spousal bypass Trust’ would pay the remaining fund to a discretionary trust so, on the member’s death, the surviving spouse and children are discretionary beneficiaries. This potentially avoids a large IHT liability on the death of the surviving spouse, and the trustees can pass the funds on to the remaining beneficiaries in the most tax efficient way.

It is important to remember that, to avoid HMRC invoking anti-avoidance provisions, the key motivation for a QNUPS must be to provide an income in retirement. Further, where the member makes a particularly large contribution affecting their standard of living, or if they die shortly after the transfer, HMRC may challenge the scheme, perhaps losing IHT exemption. It is, therefore, always worth considering a ‘reasonableness’ test at the time of transfer.

If assets up to the current nil rate band (£325,000) have already been gifted to a discretionary trust and additional funds are available, these could be contributed to a QNUPS as long as the contribution isn’t considered excessive. We recommend seeking advice on this subjective matter.

QNUPS benefits:

  • No maximum contribution level
  • Income payments may be paid gross
  • No reporting to HMRC
  • Pass on remaining fund at death with no IHT and no Member Payment Charge

* There is no tax relief on contributions if contributing to a QNUPS while resident in the UK.

For more information on our services or to find out if you can take advantage of a QNUPS please use the contact form in the blue bar.