QNUPS (Qualifying Non-UK Pension Scheme)

Qualified Non-UK Pension Schemes are a non- UK overseas pension scheme that qualifies to be exempt from UK inheritance tax (IHT). QNUPS were first created as part of the IHT regulations 2010. QNUPS are available to UK tax residents, including those residing in the UK, and overseas non-UK residents, including UK expats.

QNUPS can accept transfers from non-UK pensions, but will be dependent on the rules of your existing scheme and is best discussed with a qualified advisor. QNUPS cannot accept transfers from UK pension schemes.

For clients with sizable wealth though, QNUPS can form a key part of any thorough advice process and should not be overlooked. They are a flexible alternative for both UK and Non-UK citizens and come with several benefits which even most international advisors don't fully understand. The main downsides of QNUPS are that it cannot receive tax-relieved funds, including UK pensions and once contributed to, the decision is irrevocable.

QNUPS are valuable for high wealth individuals who are nearing or are already over their LTA. If you go over your LTA, you are subject to paying 25% of the value of anything above this level. For instance, if you have a SIPP worth 3 million GBP, you would be 1,926,900 GBP over the 1,073,100 GBP allowance.

Therefore, once you crystallised these benefits, you would pay a 25% tax of 481,725 GBP (1,926,900 * 0.25%), to the HRMC. QNUPS are not subject to an LTA charge; therefore, as a High Wealth individual, you can consider contributing to a QNUPS to avoid this charge if your funds are likely to surpass your existing LTA amount or reduce any further charges by contributing to a QNUPS.

However, from 6 April 2023, the LTA is now removed, and from April 2024 it will be completely abolished. Consequently, one will be able to contribute as much as they like into their pension schemes, and benefit from government tax relief, without being penalised for exceeding the LTA level.

Expats living outside the UK can also benefit from a QNUPS if they are considering moving back as UK domiciled. As an expat residing outside the UK, you can no longer contribute to UK pension schemes. All unused funds in the scheme can pass on to your beneficiaries who might reside in the UK, free of IHT. With the abolishment of the LTA from 2024 onwards, this is now a key driving factor to set one up.

• Less limits on investment restrictions, including real estate assets

• No limit on contributions, but it is sensible to limit them to an overall portion of your wealth

• You can continue to contribute to a QNUP after retiring. Therefore, you can contribute with unearned income, unlike most UK schemes.

• QNUPS are widely available in numerous countries (including Jersey, Guernsey and the Isle of Man), unlike QROPS which have been delisted in many jurisdictions with only Malta really still standing as the go-to jurisdiction.

• No requirement to buy an annuity.

• Ability to take a 30% tax-free lump sum, higher than the UK scheme's 25% PCLS

• Loans can be made to members but are dependent on the jurisdiction.

• Up to a 30% Loan before retirement only with Guernsey QNUPS, which must be paid off by drawdown.

• Upon your death, any unspent funds pass to your beneficiaries free of IHT.

• Tax-efficient withdrawals in most jurisdictions.

• Funds can grow free of Capital Gains Tax (CGT)

• No UK income-tax on non-UK source income arising from investments.

• No Life Time Allowance Charge (LTA)

• No Tax Relief on contributions

• Tax-relieved pension funds cannot be transferred to a QNUPS (No UK pension plans).

• Employer contributions cannot be made if UK employed or a UK resident.

• Costs are significantly higher than an International SIPP and typically slightly higher than QROPS.

You can start taking income from a QNUPS from age 55; you also have the option to defer taking payments until the age of 75.

A QNUPS cannot accept pension transfers from UK pension schemes, whereas a QROPS can accept transfers from UK pension schemes. In fact, QROPS were specifically created for this purpose, as part of EU legislation from Brussels.

With the UK no longer forming part of the EU, questions marks have started to be raised as to the shelf life of QROPS, which HMRC have been reviewing.

HMRC defines a set of criteria that a QNUPS must meet to have a ‘Qualified’ status:

• Must be regulated in the jurisdiction where the QNUPS is established

• Must be recognised for tax purposes in the jurisdiction where established

• At least 70% of the fund must be used to provide the member with retirement income

Effectively, you must ensure that the scheme is being used mainly to provide income for your retirement, rather than to evade IHT. This means you must provide evidence that you will spend most of the funds built up in your QNUPS during retirement.

Unlike UK pensions schemes, there is no UK tax relief on contributions to a QNUPS. You will also have to pay income tax at the rate of your local jurisdiction, depending on where you reside.

Theoretically, there are no limits to the contributions of a QNUPS. However, HMRC QNUPS rules require that at least 70% of the funds will be spent as retirement income. Therefore, you must judge how much you would need to maintain your standard of living annually.

This amount should add up to at least 70% of the value of your QNUPS pension. This is something our regulated consultants can advise you on.

If your scheme has not yet reached the value needed to maintain your retirement standard of living, you can continue to contribute. However, if you continue to contribute and use less than 70% of these funds in retirement, you could be subject to IHT tax and face other tax penalties.

Yes, your assets can grow tax-free whilst inside a scheme and not pay Capital Gains Tax or Income Tax. This includes UK citizens who hold a QNUPS as well as non-UK citizens. Therefore, UK and Non-UK citizens can buy, sell, and hold UK assets within a QNUPS without paying capital gains tax on the assets.

If you die before age 75, the QNUPS can be paid to your beneficiaries free of income tax.

If you die after the age of 75, the QNUPS will be subject to income tax at the beneficiaries’ marginal rate of tax upon receiving the funds.

The QNUPS will not face any Inheritance tax upon death.

QNUPS annual maintenance costs are higher than SIPPs and typically have a higher initial set-up fee. The annual fee is typically in the range of 750-1,000 GBP a year. Therefore, they are only really viable for people with larger capital or funds whose tax savings would exceed the cost of maintaining the QNUPS.