QNUPS has remained in QROPS shadow for some time. However Adam Wrench believes they can form a useful part of a client's retirement planning portfolio
There’s been much talk on QROPS within the pensions marketplace, but altogether less attention has been lavished upon its lesser-known sister QNUPS (Qualifying non-UK pension schemes).
While QROPS came into effect in 2006, QNUPS did not appear until several years later. Borne out of the inheritance tax regulations, QNUPs were not formally introduced into the marketplace until February 2010.
But what they lack in maturity, they certainly make up for in benefits.
Since the introduction of ever lower annual and lifetime allowances on pension contributions – a bone of contention among pension investors – QNUPS have played a pivotal role in helping expats to top up their retirement income.
The maximum tax-free relief on pension contributions currently sits at £50,000, while the lifetime allowance is £1.5 million; both of which are a far cry from the heady days of a few years back when these sums sat at £255,000 and £1.8 million respectively.
There was further bad news for pension savers in the Chancellor’s Autumn Statement at the end of 2012, when George Osborne wielded the axe on both, slashing the annual allowance to £40,000 and the lifetime allowance to £1.25 million from 2014 onwards.
While the decision to lower the limit was presented as a means of protecting the public purse in times of austerity, it has nevertheless rendered many high earners unable to contribute further without running the risk of substantial tax charges.
Unaffected by annual and lifetime allowances, any contributions made into a QNUPS are not subject to a cap, as they do not attract tax relief, making them an ideal retirement savings vehicle as any growth in the value of the fund is also tax free.
Investors could benefit from investing the maximum tax-free amount into a UK pension and placing any outstanding monies into a QNUPS, allowing them to take full advantage of its wide range of benefits.
Unlike some of the stricter UK pension options, QNUPS permit a wide range of investments, which would certainly appeal to those with a more daring attitude towards risk. Currently, cash, securities, commercial property, private equity, quoted and unquoted securities and even residential property are up for the taking.
However, its greatest advantage (unlike its UK cousins) is that any lump sum death benefits, either pre or post retirement, are not subjected to the 55% death tax.
This makes QNUPS an attractive option for clients seeking to protect their estate and wealth for future generations.
It is worth noting however that HM Revenue & Customs is strict in its approach to QNUPS being used to avoid IHT and those members who obviously do so could run the risk of a lifetime IHT charge on any transfer into the scheme as well as a further charge upon death should it occur within seven years of any transfer being made.
However, with the abundance of tax-planning benefits available, it would be hard for a QNUPS member not to identify several reasons for opting to place their savings in one.
There is currently no restriction on age and no limit on how much money can be invested. Simply put, for a scheme to qualify as a QNUPS, it must meet similar criteria as a QROPS; it has to be set up abroad and the jurisdiction in which it is set up must ensure it is regulated as a pension and recognise it in tax terms, as required by HM Revenue & Customs rules.
For those UK expatriates who remain UK-domiciled, setting up a QNUPS makes perfect sense, especially if they intend to return to the UK, as the underlying incomes and capital gains raised will be exempt from UK tax.
In my opinion, to ignore any vehicle which offers investors a friendlier tax environment, increased flexibility and an effective shelter from IHT would be foolhardy.
Adam Wrench is business and product development manager at London & Colonial
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