- Tax efficient planning
Pension schemes and effective retirement planning are essential for those who choose to relocate or retire abroad as financial independence is of paramount importance. Pension solutions for UK expatriates have been available through QROPS for the past few years and now the introduction of QNUPS promises another potential tax efficient way to enjoy an income in your retirement.
Qualifying Non-UK Pension Schemes (QNUPS) were brought into force on 15 February 2010 by HMRC, creating further opportunities for British expatriates to plan for retirement and potentially be more tax efficient within local taxes and UK inheritance tax (IHT).
QNUPS allow individuals to set up a pension which functions in much the same way as a QROPS, the difference being that you can transfer any assets into a QNUPS but not UK pension. The rules governing a QNUPS are also more flexible. It allows individuals to keep investing their money into the scheme even after retirement and after they have taken their lump sum, for as long as they wish to. Indeed, an individual can receive an income from the QNUPS whilst still investing money into it. There is no maximum age to which you can invest into a QNUPS.
Upon being placed into a QNUPS, the funds and assets you have invested within a QNUPS become free of UK inheritance tax, meaning that upon your death, your beneficiaries receive the money or possessions you wished them to receive, without a portion of your assets going to the UK taxman.
A QNUPS is essentially a pension plan and therefore similar rules as to QROPS apply. Up to 30% can be taken as a tax-free cash lump sum upon reaching retirement age, with the remainder being left to generate an income in retirement. The individual must take an income at age 75 and the regulations governing the level of income allowed are as per a QROPS.
QNUPS hold great advantages to those who invest within them, including that the fund is immediately free of UK inheritance tax. They also mitigate local succession taxes in many countries, while in some countries the income can be paid to the individual in such a way as to greatly reduce the local tax charge.
• There is no maximum age to which you can invest within the scheme.
• You do not need to receive income from employment to make a contribution — you can contribute many assets into a QNUPS.
• There is no maximum limit to how much you can invest into the scheme but this must be realistic to your income.
• It is potentially very tax efficient and you may be able to avoid local wealth taxes.
• QNUPS may help avoid local succession laws, meaning you are able to choose who inherits your money.
• Assets will grow free from tax depending on the jurisdiction in which the QNUPS is based.
• A QNUPS offers considerable investment flexibility and choice. Furthermore, your assets can be invested, and any benefits taken, in a currency of your choice, giving you the opportunity to remove currency risk.
• The trustees of a QNUPS have no reporting obligations to HMRC. You can have both a QROPS and a QNUPS.
Essentially, QNUPS allows British expatriates to put their investable wealth into a pension structure and significantly improve their personal tax position and as a result, that of their heirs.
Benefits at a glance:
• UK IHT benefits — contributions are not considered as a gift and are immediately outside of the estate for UK IHT.
• No HMRC reporting.
• Flexible investment options.
• No contribution limits.
• UK residents can contribute if they have reached their Lifetime Allowance limit or paid full tax
• Anyone can contribute.
QNUPS are open to any expatriate and even UK residents. Indeed, they hold the greatest benefit to UK domiciled individuals.
A person’s domicile is difficult to determine and one should seek assistance from a professional in regard.
The scheme is set up as a genuine pension and therefore an income must be taken at the age of 75. It is important that the intention in setting up the QNUPS is to generate an income in retirement, otherwise the QNUPS could be subject to heavy tax penalties by HMRC.
Inheritance Tax is a tax due by the estate of a deceased individual upon that person’s death. It takes into account certain gifts above a certain threshold made during that person’s lifetime, certain settlements into Trust and other factors. It must be paid before any assets are actually passed on to the intended beneficiaries, usually paid on somebody’s estate when they die. It will also include the gifts and trusts made during that person’s lifetime. Typically, it is the executor or personal representative’s responsibility to pay inheritance tax using funds from the deceased’s estate.
There is a Nil Rate Band under which IHT is not payable by the estate. The threshold is £325,000 for a UK domiciled single person and £650,000 for UK domiciled married couples or those in civil partnerships, although many factors come into play in determining the Nil Rate Band for married couples. The estate includes houses, possessions of significant value, money and investments. The rate of IHT for a UK domiciled individual is 40%.
An individual living abroad will also potentially have to pay death taxes in his country of residence, depending on the laws of that country. Where a double tax agreement exists, the total tax bill payable on death will be affected by the agreement so that death taxes are not paid twice.
However, if you were to invest within a QNUPS, the assets put into the QNUPS become immediately free of UK inheritance tax if you are living overseas, and may become free of other death duties which may be applicable in the country you live in. This will make the heartache of losing a loved one easier for your family as they will not have to face potentially heavy taxes.
Importantly, the assets within a QNUPS continue to be outside a person’s estate for UK IHT purposes, even if they do eventually return to the UK. Assets within the QNUPS will continue to be outside the client’s estate until their death. This is assuming that the rules governing the QNUPS are observed and an income is taken in retirement.
QNUPS could potentially hold a valuable solution for your retirement problems when moving abroad. It is important that you remain financially independent and are able to pass on your wealth as you wish. A QNUPS scheme allows you to do just this.