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QNUPS: Offshore Pensions for British Expats Thumbnail

QNUPS: Offshore Pensions for British Expats

Simon Chegwidden

Understanding Qualified Non-UK Pensions Scheme (QNUPS). The "Qualified" status of QNUPS means that HMRC recognises it as a pension scheme and, as long as certain rules are followed, it is exempt from inheritance tax (IHT) upon the account holder's death. This makes QNUPS a valuable tool for estate planning.

To illustrate the benefits of QNUPS, let's consider a scenario. Suppose you have an estate valued at £5,000,000, and both you and your spouse are British-domiciled. Under the current UK IHT rules, your IHT liability would be calculated as follows:

£5,000,000 – (2 x nil rate bands) £650,000 = £4,350,000 x 40% = IHT liability £1,740,000.

Now, let's explore some of the strategies to reduce this liability:

  • Life insurance: You can acquire life insurance to cover the IHT liability, but limitations based on age and health may apply. This may be a viable short-term solution.
  • Gifting money: Another option is to gift money, which would remove it from your estate after seven years. However, this approach entails relinquishing control over the funds, and if you gift to financially immature children, they might not manage the money wisely.
  • Settling money into a Trust: Placing funds into a trust above your nil rate band (£325,000) incurs an immediate tax charge of 20%. Trusts are subject to significant taxation and legislation, requiring careful planning to be effective.
  • UK pensions: Traditional UK pensions limit your annual investment to £60,000 per tax year.
  • Offshore pensions (QNUPS): QNUPS allow you to retain control over your funds, removes the transferred money immediately from your estate, enables tax-free growth, and permits passing the pension to chosen beneficiaries free from UK inheritance tax. While there is no specific upper limit on contributions or holdings in a QNUPS, it's essential to establish it as a retirement plan, ensuring the investment aligns with your retirement income needs and net worth. Your Avrio Wealth advisor can assist you in this planning process, ensuring compliance with HMRC requirements.

QNUPS function similarly to a trust, with trustees managing the scheme on behalf of the beneficiary (i.e. you). It facilitates the transfer of funds from your estate to the pension trust, safeguarding them from inheritance tax and benefiting your retirement plans, ultimately allowing your beneficiaries to inherit the pension free of IHT.

Regarding income and death benefits, the specifics vary depending on age:

  • Ages 55 to 75: Income is available and taxable in the UK, only if you are a UK tax resident. There is no obligation to draw income; you can receive a tax-free cash allowance of up to 30%. Beneficiaries can inherit a tax-free lump sum or a pension in their own right.
  • Post 75: Minimum income drawdown is required, and tax-free cash remains available if not previously taken. Upon death, UK resident beneficiaries can receive a taxable lump sum or a pension in their own right, while non-UK residents can receive a tax-free lump sum or a pension.

While the post-75-year rules may initially appear restrictive, they allow the distribution of payments over multiple years. This allows individuals with high-value estates to choose a minimum income, safeguarding the pension for future generations. 

It's important to note that QNUPS investments grow in a tax-free environment and remain free from inheritance tax. Thus, even considering the highest rate of beneficiaries' income tax, the taxation of benefits often proves more favourable than if the same investment had grown in a taxed environment and then incurred inheritance tax upon death. Beneficiaries who choose to receive a pension in their own right follow the same rules and enjoy the associated tax benefits. 

In summary, a correctly set up QNUPS can:

  1. Immediately reduce your taxable estate;
  2. Provide tax-free cash and retirement income that is only taxed in the UK for UK tax residents;
  3. Allow the transfer of wealth to beneficiaries as a free lump sum or pension.

Please contact Avrio Wealth if you have any questions or would like to know more about QNUPS and your future wealth planning. 

This material is intended for educational and informational purposes only. It is not intended to provide specific advice or recommendations for any individual. Additionally, you should consult with your Financial Advisor, Tax Advisor, or Attorney on your specific situation. The views expressed in the material are that of the author and do not necessarily reflect those of any market, regulatory body, State or Federal Agency, or Association. All efforts have been made to report or share true and accurate information. However, the information may become materially outdated or otherwise rendered incorrect due to subsequent new research or other changes, without notice. The author nor the firm are able to always verify the content from third-party sources. For additional information about the firm, please visit the MAS Website at https://www.mas.gov.sg/  and the SEC Website at www.adviserinfo.sec.gov. For a copy of the firm's ADV Part 2 Brochure, please contact us at info@avriowealth.com.