The 2022/23 tax year is drawing to a close, there are some simple tax planning…
For UK resident individuals that have fully utilised their lifetime allowance or don’t have sufficient annual allowances to add to a UK pension, consideration should be given to the QNUPS: the Qualifying Non-UK Pension Scheme.
QNUPS are a creation of UK legislation and intended as an offshore equivalent to a UK pension. They are very similar to the UK SIPP, with favourable tax advantages, including being outside of your inheritance tax estate.
In summary, the tax benefits are as follows:
– As mentioned above, the whole of the QNUPS is outside of your inheritance tax estate. On death, it can either be transferred to another QNUPS, to a trust that could have its own tax advantages or brought to an end, depending on the wishes of your beneficiaries.
– UK income tax only arises on UK sourced income and at basic rate. Typically, a QNUPS will invest in jurisdictions where the tax is minimal. Note, unlike a SIPP, QNUPS can invest directy in UK residential dwellings.
– UK capital gains tax is not applicable unless there is a disposal of UK residential dwellings.
– The first 25% can be taken as a tax free lump sum; further income will be taxed at your marginal rate.
Given that contributions to a QNUPS are not relieved from tax and employers cannot contribute, generally it will be preferable to use a UK SIPP. However, if your lifetime allowance has been fully utilised, your annual allowance is particularly low following the reduction in limits for additional rate taxpayers, you don’t have sufficient ‘relevant earnings’ or you just want to put more into a pension, a QNUPS is a highly tax efficient alternative to a UK pension.
To qualify, the QNUPS must be entered into with the intention of it being used as a pension, i.e. that the individual has a requirement to fund their retirement from a pension and is not doing it for tax avoidance, particularly inheritance tax. For example, if an individual has been diagnosed with a life threatening illness or is in their 90s, it is unlikely that HMRC will consider it to qualify. In addition, the QNUPS must be situated in a country that has a similar investment industry to the UK; the Channel Islands, Isle of Man and Malta are typical jurisdictions.
From a practical perspective, the individual must appreciate that this is a pension and they will not be able to access the funds until they are 55.
The most common form of a QNUPS is a QROPS (a Qualifying Registered Offshore Pension Scheme). For a QNUPS to be a QROPS, it must be registered with HMRC; consequently, it will receive a certficate. The main advantage that a QROPS has over any other form of QNUPS is that it can receive funds from UK pensions.
If you would like to know more about the QNUPS, please don’t hesitate to contact us. Please note, whilst we can discuss the basic concepts and the tax implications, the assistance of an independent financial advisor is required in order to provide investment advice: we are not authorised to give investment advice and nothing herein should be considered as such. If you do not have an independent financial advisor, we can provide you with the details of those that we know and trust.