A detailed guide to. QROPS and Overseas Pension Transfers. Find out how you might be able to unlock the full value of your pension.

Transcription

1 A detailed guide to QROPS and Overseas Pension Transfers Find out how you might be able to unlock the full value of your pension Experts for Expats

2 Contents 4 An Introduction to QROPS 5 QROPS Benefits: An Overview 5 Qualifying criteria for a QROPS 6 The QROPS transfer process 6 Types of QROPS available 8 How a QROPS can be structured 9 The underlying investment 10 QROPS Fees and Commissions 10 QROPS Fees and Charges 11 The types of QROPS advisers 11 Concerns over QROPS 12 QROPS: FAQ 14 Comparing a QROPS to a SIPP 14 QROPS 14 SIPP 16 QROPS & QNUPS 18 An overview of the benefits of a QNUPS 19 QNUPS FAQ 2

3 About Experts for Expats Experts for Expats is an independent organisation comprised of a number of hand-picked advisers. Our links with the British Expat public and our knowledge of their on-going requirements also allows us to assist our network of financial advisers in positioning their activities appropriates and keeping abreast of their common concerns. The network of advisers that we have established allows us to help those that are seeking advice, to source an appropriate professional in their own locality to assist them with their own requirements. Our own team has many years of experience in assisting British expats and we ensure that we are only working with and recommending advisers that have the necessary experience, qualifications, regulation and integrity. 3

4 An Introduction to QROPS Since 2006 it has been possible for non-uk residents with pension funds locked in the UK to reap the benefits by transferring them to a QROPS (Qualifying Recognised Overseas Pension Scheme). A QROPS is an overseas pension scheme that meets certain requirements set by HM Revenue and Customs (HMRC). A QROPS can receive the transfer of UK Pension Benefits in privately administered pension schemes, without incurring an unauthorised payment and scheme sanction charge. QROPS are increasingly popular for British Expats due to the tax advantages on the pension draw downs and the death benefits. Pension funds left in the UK are heavily taxed upon death, meaning that in some cases up to 55% goes to the tax man rather than the deceased loved ones. Transferring a UK pension fund into a QROPS can avoid UK taxation altogether. Typical scenarios are where a UK resident leaves the UK to emigrate (or to retire abroad) having built up a pension fund within a privately administered scheme or when a person born abroad who has spent some time working in the UK and built up benefits in a UK Pension Scheme decides to return to their home country with an expectation of then retiring there. The QROPS does not have to be established in the new country of residence, thus providing greater flexibility and stability, along with a wider choice of scheme provider. To become a QROPS, a pension scheme must apply to and be approved by HMRC. A list of QROPS that have consented to have their names published is available on the HMRC website and is regularly updated. Transferring your UK pensions to QROPS may bring several advantages No requirement to purchase an annuity whatever your age Leave remaining pension funds to your chosen beneficiaries free of IHT Enjoy greater flexibility and investment freedom Access to a lump sum at any point Be given the option to choose various low cost structures Receive your pension income with zero tax deducted from the UK 4

5 Why pay tax that you do not have to? Depending on your status and current location, along with future living plans, we can answer your queries and provide qualified and expert advice, without any further obligation from you. The key here is that one size does not fit all. However, anyone with a UK pension scheme who now lives overseas as an expatriate, or is planning to leave the UK, can now transfer their existing pension provisions into a QROPS (Qualifying Recognised Overseas Pensions Scheme). QROPS Benefits: An Overview For those considering using a QROPS to unlock a pension scheme, you can look forward to enjoying a number of benefits. Protection from UK IHT. Avoiding UK income taxes which can range from 20% 45%. Moving your pension into the currency of your choice. If you live in Europe, you may want to hold your pension in Euros so that your pension income doesn t fluctuate with currency fluctuations. Freedom of investment choice. You can move your pension funds into a QROPS in specie, which means you can use the same funds, but under the QROPS umbrella for tax shelter. Alternatively, you could invest in almost whatever mutual funds, shares, ETFs, gold funds, silver funds or bond funds that you choose. Access to your pension at 55. An increased lump sum of 30% rather than the 25% in the UK if you have been offshore for 5 years. Ability to draw a higher pension income than in the UK if you wish. Tax Efficiency. The ability to avoid income tax, capital gains tax, dividends tax and inheritance tax. Ease of access. Get all your pensions transferred to the same place, where you can access them online whenever you want. Qualifying criteria for a QROPS You have UK pensions (excluding state pensions) worth at least 50k You are planning to, or currently, live overseas You are not planning on returning to the UK Or you will at least be out of the UK for a minimum of 5 years You have not already purchased an annuity 5

6 If yours is a final salary scheme, then the scheme should not be already in drawdown The QROPS transfer process The QROPS transfer process begins with the person with the UK pensions writing a letter of authority allowing the adviser to review any pension schemes held in their name. At this stage many advisers/firms will also request QROPS transfer paperwork at the same time. The adviser will review the pension and often provide a report. The detail within this report will vary depending on the company you are dealing with. Receiving personalised report should also include things like your risk profile as well as your objectives and therefore should detail everything they have found, the options available (including reasons why and past performance), detail all charges which apply. Once the report has been presented, the adviser will walk you through the options and charges, as well as growth potential to ensure that you full understand all the options available. They ll then make their recommendation to you about your best course of action, which you should never be pressured into taking. If you decide to proceed with the QROPS transfer, you should have a choice about how you would like to pay for their service. Fee based, which is a charge you pay separately or is taken from the money transferred which tends to be a percentage of the pension pot or in many cases people pay by commissions which again is a percentage of the pension but tends to be a higher percentage and, in turn, will increase annual charges. As with any pension or investment, a QROPS then incurs annual charges, which again are simply taken from the pension itself but on many occasions are often excluded from the reports as the advise is considered to be given to the Trustees and not yourself and therefore they already no the annual QROPS charge. Remember to always ask about the costs. Types of QROPS available There are three types of QROPS. Different companies have different names so we are going to call them QROPS 1, 2 & 3. Not all companies offer all three types of QROPS. They are often based in three main locations, Malta, Isle of Man or Gibraltar, there are many more but these tend to be the most used currently due to good double tax agreements (DTA) and reduced withholding tax. The wrong jurisdiction can have a knock on affect in regards to withholding tax. Example: 6

7 If you have a Maltese QROPS and live in Spain then due to the DTA income taken from the QROPS is paid gross and just needs declaring in Spain where you will pay the tax. If on the other hand you hold a Maltese QROPS and you live in a country without a DTA a withholding tax may apply. QROPS 1. Firstly there is the QROPS for smaller pensions valued up to 100,000. With this QROPS there are significant restrictions on the investment options available, and the QROPS fees can be lower due to the size of the pension but again is not always the case if the advisor is restricted to using a limited number or only one provider. The fees charged here are a fixed annual fee, rather than percentage based. QROPS 2. This is for QROPS in excess of 100,000. A fixed fee approach again which can be great for larger sums of money. If the provider does offer QROPS 1 the fees here tend to be higher. QROPS 3. Finally, QROPS 3 is charged as a percentage of the pension pot and is designed to ensure that a group of Trustees has final approval on each purchase with the pension funds held. The QROPS charges begin at 0.5% of the total pension value. All three QROPS charge an initial/set up fee and then continued annual charges. All companies will have their own fee structure and so for set up fees they can range from anything from depending on size but most of all the company you use. Annual charges range from around based on the size and/or the company that has been selected for you. If QROPS 3 is choosen these fees can be much higher as its a percentage and based on the funds under management. The most commonly used QROPS are 1 & 2 and the following will explain the next steps used by the adviser. 7

8 How a QROPS can be structured A QROPS is made up of three layers. The QROPS itself is a pension wrapper like the occupational pension, personal pension, final salary pension or Self Investment Pension Plan you are looking to move it from. The advisers then include within this for an offshore investment platform usually made up of offshore life bonds, and within this the investments you wish to make, such as ETF s, Mutual Funds, Stocks & Shares and more. QROPS Pension Wrapper Offshore Investment Platform (eg. life bonds) Underlying Investments (eg. ETE, mutual funds, funds of funds, etc...) QROPS Platforms Once the type of QROPS (1 or 2) is selected, your adviser will then select the most suitable offshore investment platform to invest your pension. For a QROPS, this will often take the guise of an offshore life bond which is managed by a number of investment companies. Some of these companies are household names, while others you may not have heard of. A true independent adviser will not be restricted on which provider to use and with small the differences between them should recommend the most suitable. The adviser s investment recommendations should be matched against your risk profile to 8

9 ensure that your investment has the best chance of achieving your objectives. If you have not completed a risk profile or had a detailed discussion of the level of risk you wish to take then ask how they formulated your plan. Once again, as with any investment platform there are charges which apply to each investment scheme and will range from 0.2% to 1.6% per year, could be based on the initial investment amount or the current value and could be for a set period of time or the life of the investment platform. The charges will differ from provider to provider and how you are paying for the services. *Take note, the higher the annual charge the more commission received. The adviser, if charging by commission, will also receive a one-off commission payment based on the annual fee you pay often as high as 7% of the total value of the investment at this stage for placing your pension. You do not see this come from your pension but with a lock in period which can be for as long as 10 years, with penalty charges applied if you come out early if you decided you wish to transfer your pension away and annual charges you are paying them over time. Even with paying a fee, short lock in periods may still apply. Other charges which may apply Other charges at this stage can include dealing costs and admin charges. Something to consider: Taking your pension commencement lump sum (PCLS) soon or currently in draw down, the annual charge you are paying maybe based on the initial investment and not the value at the time, therefore if you take 25% out the next day your annual charge as a percentage has increased by 25%. The underlying investment The final element to the QROPS transfer is the actual funds where the money is invested. There are typically four types of options available: ETF (Exchange Traded Funds), Mutual Funds, Stocks/Shares and Fund of Funds. All these areas will have a different level of risk associated to them and any portfolio built should reflect your personal appetite. With each of the ETF s, Mutual Funds and Fund of funds they will incur annual charges (typically between 0.1% and 2%) Warning! Some advisory firms, use in house or affiliated funds from which the firm and the adviser also take a % commission but with this will also have a tie in period. These firms also incentives to their advisers to choose these funds, regardless of the client or the client profile due to the financial gain for the adviser and advisory firm. 9

10 QROPS Fees and Commissions The theory behind offshore investments in general is that it permits an investor to get access to better potential returns on their investment and also find opportunities to minimise their tax liability. This is no different with a QROPS. However, in the UK, financial advice is strictly regulated and advice can now only be provided under a fixed fee charging structure (whether per hour or per transaction). Offshore financial advice is still predominantly offered on a commission basis and is therefore can be incredibly lucrative for the adviser. The key thing to remember is that when you start adding up the charges and commissions for a QROPS transfer and the annual fees, they can through fault of only your advisor start to eat into the actual return on investment, presuming that the funds perform as expected. It is possible that through the combination of QROPS annual fees and charges, potential returns of 11% had been reduced significantly reduced - and often without the client being aware. When the individuals find out, it s often too late to take immediate action. Once the tie-in periods are over, they are free to move. QROPS Fees and Charges Any investment will incur an annual charge and in the case of a QROPS, this will be taken from your pension. However, remember that in a lot of cases the fees will actually be based upon the initial value of your pension, rather than recalculated year on year. This could be a benefit to some but not all. You may also be liable for higher annual charges on the investment platform if your adviser takes maximum commission as this is how some bond providers pay for your advice. If a QROPS transfer is managed correctly, the charges your experience should not be dissimilar to your current pension and the range of investment options should be much greater than those available through a SIPP. It is important that you should also never pay for an investment such as a structured note or mutual fund if you are being invested in life bonds. Ultimately, when it comes to QROPS charges, transparency is key. The more details held within the report the better. When reviewing your report, look for the four tiers, namely: QROPS charges Life bond charges including annual fee, admin fee, dealing costs 10

11 Cost of the underlying ETF s, Mutual Funds, etc Ongoing advisor charges. You should always ask questions about charges and commissions. The types of QROPS advisers There are two main types of advisors using UK FCA terminology, Tied or Whole of market. Tied or Restricted advice is when products being advised upon are that of the company or from a restricted panel of affiliates. Whole of market or commonly know as Independent Financial Advisers will not be under such obligations and are free to find the most suitable fund for you and your risk profile. Warning: Some firms have used the term independent meaning they are not owned by any major financial firms but, based on FCA guidelines, would be considered tied. If you are in doubt, don t be afraid to ask. Size of firm doesn t always matter Big is not always better when it comes to financial advisory firms. Even if they are regulated, the regulator will only cover their jurisdiction. The FCA, for example, do not regulate advice offered in any country other the UK without those firms having correct passporting rights. While you can take more comfort from an adviser who is regulated by an organisation like the FCA (and you can check on their website if their claim is genuine), the advice outside the UK is not necessarily covered. There are, of course, some exemplary larger firms, and you can spot the difference between the good and the bad. For example, a true financial adviser will not work from a script and should be able to answer any financial question. If they are qualified, they should be able to explain their qualification and you should not be scared to ask and investigate. Concerns over QROPS There are now hundreds of millions already invested into QROP schemes around the world. There are also a number of people who are concerned about their investment, or the way their QROPS was sold to them. Typical issues we hear about include: 11

12 The charges are higher than expected The pension doesn t appear to be performing as expected I ve stopped receiving an income from my pension My adviser has disappeared If any of these apply to you, why not review your QROPS to see if you have been incorrectly advised. It may be possible to: Change the QROPS or move it back to a SIPP Change the Life bond Change the underlying funds Or a number of combinations of the above. Making the right decision A QROPS is still a great product for non-uk residents with UK pensions, providing that the right advice is taken at the right time. And the right advice is dependent on being presented with the right information and recommendations. When it comes to choosing a financial adviser, there are one key thing to remember. Not all advisers are truly independent. Some are tied to specific investment options, either by the organisation they represent, or greed for higher commissions. They will often still label themselves as independent, but if you are ever unsure if the advice you ve been given is independent, or maybe some information has been hidden, you should always seek a second opinion before making a decision. It s important to add that commissions are not bad in themselves. They are a legitimate way of paying for the advice on offer from your pension, rather than paying up front fees out of your pocket. Also, in many cases the commissions may actually be lower than a fixed fee service. Issues only arise when commission structures are abused, and that is down to the individual adviser and their firm. QROPS: FAQ What types of Pension Scheme can be transferred into a QROPS? Nearly all types of pension can be transferred into a QROPS except for State Pensions. Any privately administered UK registered pension scheme can be acceptable, including 12

13 guaranteed minimum pensions GMP and Protected Rights (SERPS). Public Sector pensions are transferrable in the majority of cases. Do I need to transfer my pension to the same country I am retiring to? No. It is more important to find the optimal jurisdiction for your QROPS than finding one in the country you retire to. Will I pay any more taxes on my pension after the QROPS transfer? It will depend on the country you live in. The QROPS will grow tax free and then the income tax you pay on drawdown depend on the laws of the country you live in and whether they have a Double Tax Agreement with the jurisdiction in which the QROPS is held. Typically, you can set up your pension income in a tax efficient way where you can avoid most or all taxes on your income. Also, if anything happens to you, the entire pot gets passed on to your loved ones. Do I need to be offshore to move into a QROPS? No. If you live on the UK and intend on retiring or moving abroad, you can move your pension into a QROPS today. However, you need to be offshore for 5 years to get the full benefits of a QROPS. The advantage of moving today is avoiding any future tax increases in the UK concerning pensions or any closing of loopholes or changes in regulations. When can I draw my pension? You can take up to 30% as a lump sum provided you have been offshore for 5 years (only 25% if less than 5 years). This is provided you haven t taken a lump sum already in the UK. You can then draw on your pension from 55. What happens if I move back to the UK? If you move back to the UK, your QROPS would lose all of its benefits and would refer to the normal rules for a UK SIPP. Can I cash in my pension and get a 100% lump sum? There are some schemes on the market that claim to offer a 100% lump sum, this is generally against the spirit of the pension rules and it important to be aware that such schemes are actively under scrutiny and review. Making use of such a scheme may leave you open to a retrospective claw back of up to 55% of your pension. The safest way is to move a QROPS into a jurisdiction which only allows a 30% drawdown, following the intended QROPS process. 13

14 Can I move my residential properties into a QROPS? No. QROPS only allow commercial properties such as shop houses, B&B s, guesthouses and hotels. However, if you need QROPS help in this regard, you can move into a QNUPS. Comparing a QROPS to a SIPP The many thousands of British nationals living abroad are becoming more and more aware about the possibility of moving their existing pension into an overseas scheme. What these expatriates aren t always told is that QROPS are not the only option and in many cases might not be the best option. UK nationals who move abroad have three main options. They can leave their pension savings where they are (often best if they plan to return to the UK before retirement), transfer benefits into a SIPP (a Self-Invested Personal Pension) or transfer to a QROPS. The best option for you will depend entirely on individual circumstances. QROPS Generally, a QROPS must behave as if it were a UK pension for investors who have been UK resident in the previous five tax years. If you return to the UK, the QROPS will become subject to UK pension regulations. However, for investors who have been non-resident in the UK for at least five tax years, the QROPS becomes subject to the laws of the overseas jurisdiction in which it is based. You can take income with no limits and there will be no deduction of tax at source (although taxation will apply in accordance with your current country of residence). Following death, regardless of whether the QROPS is vested or not, any remaining fund can be paid as a tax-free lump sum to the nominated beneficiaries. Increased flexibility in taking a tax-free lump sum. Essentially, you can take more from a QROPS at least 5% more, but possibly much more. While increased flexibility is positive, taking too much cash out of your pension is not advisable. Income is paid gross, whereas income paid from a SIPP might be subject to 20% tax at source if there is no double taxation agreement in place between the UK and your country of residence. Post retirement, QROPS are not subject to IHT on the death of the member (providing the member has been a non-resident in the UK for at least five consecutive tax years). This gives a huge advantage over SIPPs, which are subject to a 55% tax charge on death. SIPP A SIPP is a UK-based pension arrangement governed by UK pension legislation and, 14

15 therefore, part of an extremely well regulated jurisdiction. Capital and income can be accessed from age 55, when you can take 25% as a tax-free lump sum. Depending on where you are in the world, you could also draw a tax-free income via a double taxation agreement. SIPPs enable you to invest in a wide range of asset types. Charges are usually fixed amounts, though insurance-based schemes often charge a percentage of the fund value so as the fund grows, so too does the cost of investing. Following death, the inheritance tax (IHT) position depends on whether the SIPP is vested or not (whether you ve taken any benefits), with a tax charge of either 0% or 55% applying to any lump sum payment to beneficiaries. In Summary: Is a QROPS the right option for you compared to a SIPP? Tax Income from UK pension arrangements is subject to income tax. It is collected as a withholding tax at 20%, and this tax is applied to everyone in receipt of UK pension income whether or not they live in the UK and with no exemption for foreign nationals. Transferring pension rights to an overseas pension scheme means that UK income tax on pension income can be legitimately avoided. Currency Overseas pension schemes allow for the payment of pensions in currencies other than Sterling, providing a valuable safeguard for expats. Death benefits Pension rights that are transferred to an overseas pension are also taken outside the UK inheritance tax net, which can result in a significant succession planning benefit. One form of UK pension arrangement levies a combined 82% tax and penalty charge on the death of the pension plan holder! Beneficiaries Overseas pension schemes will usually ensure that residual pension funds pass to the intended beneficiaries much easier and quicker than would be the case in the UK. Asset protection Depending on the jurisdiction chosen for the Overseas Pension Scheme, there is the potential for greater protection against creditors and other claimants than is typically 15

16 available. QROPS & QNUPS In 2010 an alternative to the QROPS was also introduced by the HMRC called QNUPS (Qualifying Non-UK Pension Scheme). The rules for a QROPS were established in the Finance Act 2004 Statutory Instrument 2006/206, the rules detailed the exact conditions required to turn an overseas pension scheme in to a QROPS. However, the Finance Act 2004 did not cover laws for Inheritance Tax, and the way it stood, QROPS transfers still became liable for UK Inheritance Tax. This issue was rectified in the Inheritance Tax Regulations 2010, and thus the QNUPS was born. The new rules mean that UK residents are allowed to transfer their UK pension into a QROPS, and subsequently have the funds free of Inheritance Tax at death. It s also worth noting that these rules don t exclusively apply to QROPS overseas transfers, if you have another type of overseas pension and it meets the requirements laid out by HMRC, then this could be seen as a QNUPS and be free from UK Inheritance Tax come the time. To have an overseas pension plan classed as QNUPS some important requirements must be met. The statutory instrument 2010/501 has a clear layout of these requirements; however you will find that the rules are the same as for the QROPS, with a few small differences. Differentiating between QROPS & QNUPS These are two very similar schemes, but with a couple of key separating characteristics. Let s start with the initials, a QROPS is a Qualifying Recognised Overseas Pension Scheme, and a QNUPS is a Qualifying Non-UK Pension Scheme. Whilst a QROPS is always a QNUPS, a QNUPS will not always be a QROPS. QNUPS were introduced in 2010, with the intention of addressing a flaw in HMRC QROPS legislation which resulted in offshore UK pension holders possibly being subject to UK Inheritance Tax. An Inheritance Tax-free pension scheme was created accordingly, which included all Qualifying Recognised Overseas Pension Schemes within it, and was labelled a QNUPS. The biggest difference is that a QNUPS does not have to be registered with HMRC, which means no reports will have to be made regarding payments or benefits given to the holder. The benefits of a QNUPS for the UK or non-uk resident include the fact that the funds will not be subjected to Inheritance Tax. Since the QNUPS is based overseas, the amount of contributions you made into the scheme would be regulated by the laws of the jurisdiction 16

17 in which the QNUPS is held. However, most offshore jurisdictions are not as restrictive as the UK when it comes to making contributions and your annual allowance. If you have been an overseas resident for over five UK tax years, then you are free to transfer any existing QROPS funds into a QNUPS, which would be of use to individuals who may have to return to the UK due to unforeseen circumstances. For if such an individual was to return to the UK and still have funds in a QROPS, HMRC would require reports, and any benefits that were due would be restricted by UK laws, or an unauthorised payment charge could be levied. But if the funds were transferred into a QNUPS then HMRC would leave it alone, with no reports needed to be made. QROPS transfers after five years of non-residency also allow the holder to escape UK taxes on their death benefits should they return to the UK. There are still some restrictions that come with a QNUPS; tax relief is not always available on contributions but this depends on the jurisdiction of the QNUPS. One other restriction is that UK pension funds can only be put into a QNUPS if it was originally a QROPS. A further exception is that with a QROPS, the holder is only able to transfer funds from an existing UK pension, whereas a QNUPS allows the transfer of property, and non-pension assets. All in all QROPS and QNUPS are attractive propositions for high net-worth individuals, especially those who live overseas. More about QNUPS QNUPS (Qualified Non-UK Pension Schemes) legislation was introduced by the UK government in 2010 to clarify the inheritance tax exemption of overseas pension schemes. They are open to UK resident and domiciled individuals, non-domiciled individuals and UK expats. Contributions to QNUPS do not receive tax relief, but assets within them grow free of tax. There is no limit on the size of contributions or total fund size - so for those affected by the 50,000 annual contribution cap and lower lifetime limit, QNUPS may offer an attractive alternative. Though it should be noted that any contributions or in specie transfers should be appropriate to the individuals lifestyle and retirement expectations. A far wider range of assets than are permissible in a standard UK pension are allowed in a QNUPS. These include cash, general investments, private company shares, stock options, buy-to -lets, commercial and residential property (excluding your main residential property), art, fine wines or classic cars. Loans of up to 25% of the fund value - repayable under commercial terms - can also be 17

18 drawn. This is a particularly useful feature because a loan can partially serve as a substitute to drawing income without attracting income tax. A tax-free lump sum of 25% is also available at retirement (30% if not UK tax resident under Guernsey rules), typically from age 55 onwards. Pension income, in the form of an annuity or flexible income drawdown, must commence by age 75. A supplementary benefit of QNUPS is that assets held within them are free of UK IHT. QNUPS cannot and should not be used for IHT planning purposes. They must be clearly established with the intention of eventually providing retirement income and the level of contributions must be proportionate to a person s financial circumstances. But as long as these conditions are met, on death any remaining assets in the pension fund can be distributed to your named beneficiaries, which could help with succession planning. An overview of the benefits of a QNUPS Tax free asset growth QNUPS is widely available in several countries and not only in countries that have Double Taxation Agreements with the United Kingdom Tax efficient no inheritance tax and may be able to avoid local wealth taxes in many cases No maximum age limit to take a QNUPS Contributions can be for income derived other than from employment Growth is free from Capital Gains Tax (CGT). This means that the capital growth of your asset will be passed on to your named beneficiary The costs associated with taking a QNUPS is extremely reasonable and includes a onetime setup fee There is no minimum value to take a QNUPS; however, QNUPS providers might recommend a minimum amount May hold assets such as property, arts, antiques, fine wines and investments You can decide who will inherit assets and funds by designating beneficiaries QNUPS Benefits Free from Inheritance Tax By taking a QNUPS an individual can shelter his/her assets in an offshore pension scheme. QNUPS provides a legitimate way of mitigating your inheritance tax bill. 18

19 Widely Available Since a QNUPS does not have to be located in country with a Double Taxation Agreement, there needs to be no reporting requirements so a QNUPS does not have to be reported to HMRC. Secondly, QNUPS can be hosted in several other countries thereby giving you wider choice. No Maximum Limit With a QNUPS, there is no maximum limit on how much can be transferred. Other offshore pension schemes might have a limit, but with a QNUPS, you can decide how much you want to invest. Tax Efficient The most important part of taking a QNUPS is that your assets including capital gains are passed on to your named beneficiaries without any tax cuts. Contributions Contributions to a QNUPS need not only be made from income earned but from assets acquired by you in any way. Assets do not have to be liquidated prior to taking a QNUPS. Residential property, antiques and even fine vintage wines are accepted. No Capital Gains Tax Another one of the popular QNUPS benefits when you take a QNUPS is that you will not be taxed for your capital gains. The full capital growth of your assets will be passed on to your beneficiaries. QNUPS FAQ What is a QNUPS? QNUPS were introduced on 15 February 2010 by the HMRC and is a regulated tax efficient pension scheme which allows investment of wealth overseas. Although it is a pension fund it does have a degree of flexibility and has some significant tax advantages. Who is allowed to Invest in a QNUPS? Anyone is eligible to invest in a QNUPS unless the country where you are resident specifically excludes this. What are the Advantages of a QNUPS? Tax efficient local taxes and inheritance tax 19

20 Tax free asset growth No maximum age limit for investing into scheme No maximum limit on the amount invested Decide who will inherit funds and assets by designating beneficiaries Avoid local wealth taxes in most jurisdictions Not necessary to receive income from employment to make contributions May hold assets such as property, investments, arts and antiques How Does a QNUPS Differ from a QROPS? QNUPS have no reporting requirements to the HMRC, whereas with a QROPS, it is a prerequisite to report to the HMRC for 5 years after you have left the UK. QNUPS allows for the continued investment into the scheme after taking an initial lump sum, whereas with a QROPS, once you have taken an initial lump sum you only derive an income from the funds that are left. In Summary: Is a QNUPS the right option for you? QNUPS can be ideal retirement planning vehicles for those with a lump sum from an inheritance, divorce, sale of a business, etc. or for those who want to add to their existing pension arrangements but have reached their lifetime allowance ( 1.5m). An important feature is that assets transferred to a QNUPS immediately cease to be part of the transferor s estate for inheritance tax purposes (no need to survive the transfer by 7 years) but it is vital to understand that the purpose for setting up the scheme must be for legitimate retirement planning HMRC will not accept them as death bed planning vehicles for the sole purpose of avoiding IHT. Proportionality tests may also be applied to ensure that an individual is not disproportionately reducing their estate. Once in the scheme the assets can be managed in a tax free environment (no capital gains tax or income tax other than on UK source income in some circumstances). As with other pension schemes the member cannot draw from the scheme until they are over 55 and a pension has to be provided from age 75. However, it is possible for a member to borrow, on commercial terms, from the scheme provided that the amount borrowed does not exceed 30% of the fund and the loan is repaid before drawdown. Once in drawdown payments made to the member during retirement are subject to income tax in the jurisdiction in which they are resident. In the UK, payments from a QNUPS are treated as foreign pension income and only 90% of the funds drawn down are subject to income tax in the hands of the recipient. 20

21 Another benefit is that on the death of the member there is no inheritance tax charge and the QNUPS can be distributed or continue for family members. Grandparents are starting to consider the benefits of allowing their QNUPS to continue to help cover the pension needs of their grandchildren and if a scheme were to continue on their death the tax free accumulation of the remainder of their QNUPS, for approximately 30 years in most cases, could provide their grandchildren with much needed additional income in retirement. In summary, QNUPS are still very viable pension planning schemes that provide tax efficient pensions for those with a lump sum or those who have reached their lifetime pension allowance in the UK. Disclaimer The content within this guide does not constitute advice and is for illustrative purposes only. Information contained within was correct at the time of going to print but may have since been superseded. In all cases, before making a decision about your pension or other financial matters you must seek independent financial advice. 21

22 Contact Experts for Expats If you have any questions about this QROPS, QNUPS, SIPPs or anything else relating to your expat life, please feel free to contact us at any time: +44 (0) Copyright ExpertsForExpats All rights reserved