What are QNUPS?
Qualified Non-UK Pension Schemes are, as the name suggests, a Non- UK overseas pension scheme that qualifies to be exempt from UK inheritance tax (IHT). QNUPS were first created as part of the IHT regulations 2010. QNUPS are available to UK tax residents, including those residing in the UK, and overseas Non-UK residents, including UK expats.
QNUPS can accept transfers from Non-UK pensions but will be dependent on the rules of your existing scheme and is best discussed with your IFA. QNUPS cannot accept transfers from UK pension schemes.
QNUPS are less well known than their closely related sibling QROPS (Qualifying Recognised Overseas Pension Scheme). QROPS are more common in the marketplace and provide tax advantages for EEA residents with UK pension assets approaching or exceeding their Lifetime Allowance limit. For this reason, they continue to be widely used, and you learn more about them on our dedicated QROPS page.
For clients with sizable wealth though, QNUPS should form a key part of any thorough advice process and should not be overlooked. They are a flexible alternative for both UK and Non-UK citizens and come with a number of benefits as explored below which even most international IFA’s don't fully understand. The only main downside of QNUPS is that it cannot receive tax-relieved funds, including UK pensions.
Benefits and Disadvantages of QNUPS
- No investment restrictions
- Unlimited contributions
- You can continue to contribute to a QNUP after retiring
- Therefore, you can contribute with unearned income, unlike most UK schemes.
- QNUPS are widely available in numerous countries (including Jersey, Guernsey and the Isle of Man), unlike QROPS which have been delisted in many jurisdictions with only Malta really still standing as the go-to jurisdiction
- No requirement to buy an annuity
- Ability to take a 30% tax-free lump sum, higher than the UK scheme's 25% PCLS.
- Loans can be made to members but are dependent on the jurisdiction.
- Up to a 30% Loan before retirement only with Guernsey QNUPS, which must be paid off by drawdown.
Tax Specific Benefits
- Upon your death, any unspent funds pass to your beneficiaries free of IHT.
- Tax-efficient withdrawals in most jurisdictions.
- Funds can grow free of Capital Gains Tax (CGT)
- No UK income-tax on non-UK source income arising from investments
- No Life Time Allowance Charge (LTA)
- No Tax Relief on contributions
- Tax-relieved pension funds cannot be transferred to a QNUPS (No UK pension plans).
- Employer contributions can not be made if UK employed or a UK resident.
- Costs are significantly higher than an International SIPP - Read more on our Dedicated SIPP Page
- Costs are typically slightly higher than QROPS
Who could benefit from a QNUPS?
QNUPS are valuable for high wealth individuals who are nearing or are already over their LTA. If you go over your LTA, you are subject to paying 25% of the value of anything above this level. For instance, if you have a SIPP worth £2 million, in 2021, you would be £926,900 over the £1,073,100 allowance. Therefore, once you crystallised these benefits, you would pay a 25% tax of £231,725 (£926,900 * 0.25%), to your beloved friends HRMC.
QNUPS are not subject to an LTA charge; therefore, as a High Wealth individual, you can consider contributing to a QNUPS to avoid this charge if your funds are likely to surpass your existing LTA amount or reduce any further charges by contributing to a QNUPS.
Kindly note, if you have already exceeded your LTA of £1.073M, you may be able to apply for LTA fixed protection for £1.25M (2016). Kindly ask one of our IFA’s during your free consultation, and they will advise you accordingly.
Expats living outside the UK can also benefit from a QNUPS if they are considering moving back as UK domiciled. As an expat residing outside the UK, you can no longer contribute to UK pension schemes. All unused funds in the scheme can pass on to your beneficiaries who might reside in the UK, free of IHT. This is a key point.
Most Commonly Asked Questions about QNUPS
What tax do I pay on contributions?
- Unlike UK pensions schemes, there is no tax relief on contributions to a QNUPS. Therefore, if you are residing in the UK, you will have to pay income tax at your marginal rate of UK income.
- Likewise, you will have to pay income tax at the rate of your local jurisdiction, depending on where you reside.
What tax do I pay on withdrawals?
- You will pay income tax at the rate of your local jurisdiction. However, it may be beneficial to have your QNUPS in a jurisdiction with a double-tax treaty with the UK. Therefore, you will only pay income tax on withdrawals in the UK, rather than paying income tax in both the country where the QNUPS is based and in your local jurisdiction. The UK has double-tax treaties with 100 countries worldwide, so check if the country you reside in is one of them.
- A double-tax treaty should be in place between your country of residence and the local jurisdiction of the scheme. Otherwise, you will pay tax in two countries.
- As you pay tax on contributions and withdrawals, a QNUPS can be even more beneficial for clients residing in countries with low or neutral income-tax that have a double-tax treaty, such as Dubai. However, on the flip side you do also escape CGT, IHT and LTA, so are still valuable even without this tax-free residency status.
At what age can I take income from a QNUPS?
- You can start taking income from a QNUPS from age 55; you also have the option to defer taking payments until the age of 75.
What is the difference between QROPS and QNUPS?
- A QNUPS cannot accept pension transfers from UK pension schemes, whereas a QROPS can accept transfers from UK pension schemes. In fact, QROPS were specifically created for this purpose, rather ironically as part of EU legislation from Brussels.
- With the UK no longer forming part of the EU, questions marks have started to be raised as to the shelf life of QROPS which HMRC have been gunning for ever since they opened this Pandora’s box in 2006. It is worth noting that very few other EU members followed these financial guidelines from Brussels.
What are the requirements for a scheme to be qualified?
HMRC defines a set of criteria that a QNUPS must meet to have a ‘Qualified’ status and secure IHT exemption, such as:
- Must be regulated in the jurisdiction where the QNUPS is established
- Must be recognised for tax purposes in the jurisdiction where established
- At least 70% of the fund must be used to provide the member with retirement income
The last point is slightly ambiguous and at Cameron James, we support our clients through this process by ensuring every advice is supported by robust and independent tax planning.
Effectively, you must ensure that the scheme is being used mainly to provide income for your retirement, rather than as a way to evade IHT. Always remember rule 101, tax evasion is illegal, while tax avoidance is perfectly legal and individuals can minimise their taxes. This means you must provide evidence that you will spend most of the funds built up in your QNUPS during retirement.
What are the QNUPS contribution limits?
Theoretically, there are no limits to the contributions of a QNUPS. However, HMRC QNUPS rules require that at least 70% of the funds will be spent as retirement income.Therefore, you must judge how much you would need to maintain your standard of living annually and multiply that by your expected life expectancy.
This amount should add up to at least 70% of the value of your QNUPS pension. This is something our IFAs will help you calculate.
If your scheme has not yet reached the value needed to maintain your retirement standard of living, you can continue to contribute. However, if you continue to contribute and use less than 70% of these funds in retirement, you could be subject to IHT tax and face other tax penalties.
Are QNUPS tax-exempt?
Yes, your assets can grow tax-free whilst inside a scheme and not face Capital Gains Tax or Income Tax. This includes UK citizens who hold a QNUPS as well as Non-UK citizens. Therefore, UK and Non-UK citizens can buy, sell, and hold UK assets within a QNUPS without paying capital gains tax on the assets.
Will my beneficiaries inherit wealth from a QNUPS?
As declared in the Finance Bill of 2017, whether your beneficiary inherits 100% of your QNUPS depends on your age when you die:
- If you die before age 75, the QNUPS can be paid to your beneficiaries free of income tax.
- If you die after the age of 75, the QNUPS will be subject to income tax at the beneficiaries marginal rate of tax upon receiving the funds.
The QNUPS will not face any Inheritance tax upon death.
What is the QNUPS cost setting up?
QNUPS annual maintenance costs are higher than SIPPs and also typically have a higher initial set-up fee. The annual fee is typically in the range of £750-£1000 a year. Therefore, they are only really viable for people with larger capital or funds whose tax savings would exceed the cost of maintaining the QNUPS.
Unsure if a QNUPS, QROPS or SIPP is the best option for you? Book yourself in for a Free Consultation with one of our qualified advisers to explain things more clearly and outline the most cost-effective and tax-effective option for you and your beneficiaries. Our regulated independent financial advisers are looking forward to helping you to decide the best option for your pension transfer!