QROPS and Overseas Pension TransfersFind out how you might be able to unlock the full value of your pension
Experts Expatsfor
A detailed guide to
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
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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.
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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
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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
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»» 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:
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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 £400 - £2000 depending on size but most of all the company you use.
Annual charges range from around £600 - £2000 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.
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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 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
QROPS Pension “Wrapper”
Offshore Investment Platform(eg. life bonds)
Underlying Investments(eg. ETE, mutual funds, funds of funds, etc...)
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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.
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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
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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:
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» 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
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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.
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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,
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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
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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
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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
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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.
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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
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»» 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.
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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.
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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) 203 3239 0271
www.expertsforexpats.com
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