Originally published in Ardel Newsletter, August
Martyn Russell, Director atArdel Trustin Guernsey, looks at how
QNUPS can potentially provide the most tax efficient and flexible
solution for a UK resident and/or domiciled
Pensions never seem far from the headlines nowadays, whether
it's relating to closures of corporate schemes, public sector
strikes, changing the age of retirement or the amendments to tax
treatment of existing arrangements by HMRC.
The pension arena is a highly specialist and complex field and
Guernsey continues to be recognised as one of the leading
jurisdictions for international pension provision. The island's
reputable trust sector administers a range of offshore structures,
both corporate and individual, from EFRBS to QROPS and the more
recently introduced QNUPS.
Qualifying Non-UK Pension Schemes (QNUPS) were introduced in UK
law in 2010. Originally, it was thought that these schemes would be
beneficial in the main to UK expats – but what additional
role can they play in the pension planning toolkit for those of us
wishing to stay in the UK?
There are a number of scenarios where a QNUPS could potentially
provide the most tax efficient and flexible solution for a UK
resident and/or domiciled individual:
high earners who have already utilised their maximum income tax
relievable pension contributions - which were reduced significantly
in April of this year;
those who have received a sizeable sum on divorce and have no
individuals not able to have a UK registered pension but who
rely on a sizeable lump sum to support them in their retirement
For this last group the individual is unable to invest some or
all of his lump sum into a UK registered pension scheme, since
contributions must come from earned income. Therefore the
traditional way he would provide for his retirement, has been to
invest the lump sum in order to provide a regular income, and to be
able to draw from the capital when required.
However the usual tax issues inevitably arise:
on the realisation of the capital growth on the investments, a
liability to capital gains tax is triggered;
income tax is charged on income arising from the investments,
whether or not the income is required;
on death the investment portfolio forms part of the
individual's estate for inheritance tax.
A QNUPS can offer an alternative solution in this situation,
furnishing an individual with the opportunity to create a
legitimate pension planning vehicle. Benefits include:
growth on investments is free from capital gains tax;
income from non-UK source investments is only taxable when paid
out – not as it arises;
with the appropriate planning and structuring the QNUPS can be
kept outside the scope of inheritance tax;
contributions into a QNUPS are not restricted to earned income
but can be from a wide spectrum of asset types, from bonds to
investment trusts and alternative pension assets such as commercial
and private real estate.
It is worth noting that contributions made into a QNUPS do not
enjoy the same income tax relief as payments into other UK
registered pension schemes. However in the case of the individual
with a lump sum, the contribution is made from capital and
therefore there is no material difference. There are additional
benefits to a QNUPS also worthy of mention:
there is no requirement to purchase an insurance annuity at age
75. Therefore pension proceeds are not forfeited on death but can
be fully distributed as part of an estate;
there is no limit to the contribution levels made into a QNUPS
although they should be proportionate to the individual's
circumstances so as not to be deemed to be a way of moving funds to
avoid inheritance tax;
loans from the QNUPS can be requested from the trustees but
would be on a secured, commercial basis and would be payable prior
to any pension benefits being distributed.
Guernsey enjoys an enviable position within all areas of the
fiduciary sector, and pension planning and administration is no
exception. Local government continues to review legislation to
ensure it maintains its competitive and commercial edge –
recently increasing the value of the initial lump sum payable from
25% to 30% (subject to the rules of the individual pension scheme).
This pragmatic approach coupled with a well-regulated stable
environment in which providers operate, will only serve to
strengthen the island's position in the future.
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