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Is it a QNUPS? Is it a QROPS?

Just as we were all starting to get to grips with QROPS, a new acronym, ‘QNUPS’, is the latest thing in the world of pensions. A QROPS is, by definition, a ‘QNUPS’, and a ‘ROPS’ is also a QNUPS, but a QNUPS is not necessarily a QROPS ... confused?

So what is a QNUPS? Is it some exciting new pensions opportunity or simply some kind of marketing spin?

QNUPS stands for ‘Qualifying non-UK Pension Scheme’. It came about through legislation called ‘The Inheritance Tax (Qualifying Non-UK Pension Schemes) Regulations 2010’ (SI 2010/0051) which came into force on 15 February 2010. The reason for this specific piece of legislation was that before A Day (6 April 2006), protection from UK Inheritance Tax (UK IHT) applied to certain non-UK pension schemes. When the changes were made on A Day, this exemption was inadvertently omitted and, without this having been corrected, UK pension funds, once transferred to a QROPS, would have become liable to UK IHT charges.

It appears however, that the correcting legislation also created QNUPS!

Being a qualifying non-UK pension scheme, a QNUPS must broadly satisfy the same conditions necessary as that of a ‘Recognised Overseas Pension Scheme’ (ROPS) (SI 2006/206). The only exception is that there is no requirement for there to be a Double Taxation Treaty (DTA). Where there is no requirement for a DTA, there are no reporting requirements to Her Majesty’s Revenue and Customs (HMRC).

Benefits of QNUPS:

  • UK IHT and local succession taxes may not be payable from the QNUPS fund upon death
  • QNUPS should avoid local succession law, enabling the client to control who inherits what and how much income can be taken from age 55
  • Income can be deferred until age 75
  • No need to have any employment income to make contributions
  • Ability to take a lump sum
  • There are no limits on contributions to the fund, nor to fund size
  • Take income and benefits in a currency of the client’s choosing, thus reducing currency risk

At the present time it is not possible to transfer a UK pension directly to a QNUPS - currently the only way to do this is by transferring to a QROPS, and then once outside of the UK for five years, arrange for an onward transfer to the QNUPS. This, however, is on the proviso that the QROPS provider is permitted to do that as many will only transfer to another QROPS due to the regulatory/scheme-imposed rules.

Who would consider a QNUPS?

  • High net worth UK residents or domiciled individuals who have already utilised their maximum income tax relievable pension contributions
  • Anyone who, after 6 April 2010, will become restricted to basic rate income tax relief on UK pension contributions

Disadvantages of QNUPS:

  • No tax relief on contributions

What’s the difference between a QNUPS and a QROPS?

  • There is no requirement to have a DTA between the UK and the country where the QNUPS is operating from. As such, it has no reporting requirements or obligations to HMRC
  • A QROPS has to report to HMRC for the first five years as part of the double taxation agreements that are in place
  • A QNUPS is immediately exempt from UK taxes on death, whereas QROPS are only exempt after five full tax years of non-residency
  • Transfers into QNUPS are from non-pension assets or investable wealth only, whereas QROPS are designed specifically for transfers from existing UK pension schemes
  • QNUPS rules are sufficiently flexible to allow someone who is 85 years of age and has been retired for 25 years, to put large investments into a QNUPS and immediately create significant tax advantages for themselves
  • The trustees of a QNUPS have no reporting obligations to HMRC unless the scheme also holds any assets transferred from an authorised UK pension scheme
  • Finally, it is worth noting that it is possible for a client to have a QROPS and a QNUPS

Important notes

Please note, the information contained in this article is based on our current understanding of Her Majesty’s Revenue and Customs law and practice as at March 2010.