QNUPS

QNUPS – is the latest piece of jargon for the expat with a UK Pension or a QROPS to consider!

15^th February 2010 saw the implementation of The Inheritance Tax Qualifying Non-UK Pension Schemes (QNUPS) Regulations 2010 No. 51. Full details available at: http://www.opsi.gov.uk/si/si2010/uksi_20100051_en_1

Whilst there is no mention of the abbreviation ‘QNUPS’ is seem likely that this will become a common phrase and an integral part of many expats lifecycle financial planning.

The Finance Act 2004 potentially allowed QROPS  (Qualifying Recognised Overseas Pension Schemes) death benefits to become chargeable to UK Inheritance tax and these amendments are retrospective to 6^th April 2006.  

To clarify a non UK resident may transfer to a QROPS and on death at any age no UK Inheritance tax is payable and this extends to a new category of overseas Pension ‘QNUPS’.

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QNUPS or QROPS

A QNUPS must satisfy the same conditions necessary for a Recognised Overseas Pension Scheme (ROPS). The missing ‘Q’ from a QROPS is an important feature because there is no requirement for the country or territory operating a QNUPS or ROPS to have a Double Taxation Treaty (DTA) with the UK if the scheme is outside of the European Economic Area (EEA). There are also no reporting requirements from a QNUPS to HMRC.

A QROPS will by definition be a QNUPS. But a QNUPS need not be a QROPS because the QNUPS could be in a country or territory without some of the required conditions to satisfy QROPS recognition.

Is there an advantage to QNUPS over QROPS?

The most obvious advantage is the removal of investment restrictions associated with UK Pensions and QROPS. As detailed previously QROPS remain under strict investment controls irrespective of the time someone is non UK resident. A QNUPS has no such restriction and can freely invest in residential property, fine wines, antiques and other tangible assets which a QROPS cannot.

So if a suitable transfer is completed from a QROPS to a QNUPS: 

• There are no reporting requirements from the QNUPS to HMRC.
• Whilst it is not a recognised transfer - if completed after five complete UK tax years of non UK residence there are no tax implications. 

WARNING!

It appears there are no restrictions on placing personally held assets into a QNUPS but creating this structure purely to avoid tax should ring alarm bells.

In the current economic climate whilst HMRC are extending the Inheritance Tax benefits for UK registered Pension schemes and correctly operated QROPS, it is unlikely the intention is to allow other non Pension assets such as cash, investments and particularly property from a person’s estate to shelter from IHT in a QNUPS.

HMRC are now regularly imposing retrospective legislation. Anyone considering a QNUPS for non Pension assets will undoubtedly be under HMRC scrutiny and should be clear to distinguish between tax avoidance foreseen by the legislators from tax avoidance which exploits loopholes in the law which are likely to be retrospectively closed.