Retirement Planning using Qualifying Non-UK Pension Schemes (QNUPS)

Background

  • QNUPS were introduced by The Inheritance Tax (Qualifying Non-UK Pension Schemes) Regulations 2010.
  • Contributions to a QNUPS should be appropriate for retirement planning and proportionate to overall wealth in the context of pension planning.
  • QNUPS assets should be appropriate for supporting a retirement benefits fund.
  • The implementation of a QNUPS must not be seen as Inheritance Tax avoidance.

Tax Treatment

  • There are no reporting requirements from the QNUPS to HMRC.
  • A UK resident may contribute to a QNUPS but will not receive tax relief on the contributions.
  • There is no UK CGT within the QNUPS as the offshore trustee enjoys gross roll-up similar to an offshore bond.
  • QNUPS assets do not form part of the estate for IHT purposes as per the Inheritance Tax (QNUPS) Regulations 2010.
  • Income tax charges will apply on benefits received.

Client Profile

  • Prospective QNUPS clients may typically:
  • have a projected shortfall of income in retirement and be looking to make additional retirement planning;
  • be constrained by Lifetime Allowance or annual contribution limits;
  • have a high overall net worth;
  • have enjoyed excellent income/earnings during their lifetime;
  • be receptive to planning efficiently for Income Tax, Capital Gains Tax and Inheritance Tax

Case Study Richard

  • Earnings of £150,000 p.a.
  • 58, Married, 2 grown up children.
  • Principal Private Residence, valued at £2.0m.
  • Second property, rental, valued at £1.0m (£36,000 p.a. rent).
  • Holiday home in France – not rented, valued at £1.0m plus.
  • Portfolio £750,000.
  • SIPP £990,000.

Objectives

  • Richard has identified a shortfall in retirement income as his SIPP is projected to provide only £55,000 p.a. compared with his current earnings of £150,000 p.a.
  • He wishes to consider further pension provision but his UK SIPP is approaching the lifetime allowance and is therefore almost fully funded.
  • He is willing to restructure of existing assets in an IHT and CGT efficient manner.

Solution

  • In conjunction with his IFA, Richard calculates that £750,000 contribution today will generate £55,000 income from age 65.
  • He assesses existing assets and with the IFA decides which he could consider moving into a QNUPS.
  • The growth and income producing portfolio of £750,000 is an ideal pension fund asset and once transferred to the QNUPS it is no longer subject to UK IHT and obtain the benefit of income tax and CGT roll up gross.
  • The Discretionary Fund Manager is given the remit that funds should be invested and managed with objective of generating income in retirement.
  • The second property in Wimbledon produces a rental income of £36,000 p.a. and is also considered a suitable QNUPS investment.
  • The Principal Private Residence and holiday home in France are not considered for transfer as they are non-income-producing.
  • An Isle of Man QNUPS provider is used as IOM QNUPS are regulated specifically as pension schemes.
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