Understanding QNUPS

October 14, 2022

Since HMRC introduced Qualifying Non-UK Pension Schemes (QNUPS) into the pensions lexicon in 2010, there has been much interest in these as stand-alone pension products.

Traditionally QNUPS were seen as a way of getting more into a pension than was available under the Lifetime Allowance regime, but with the abolition of this, perhaps it is worthwhile taking another look.

While some have been known to mis-label QNUPS as Inheritance Tax (IHT) planning vehicles, the primary purpose of a QNUPS must always be to provide retirement benefits, with the IHT position being a useful advantage.

Limitations on how benefits can be taken from most QNUPS (in comparison with flexi access from UK schemes), combined with difficulty demonstrating that contributions are for genuine retirement planning, resulted in few cases actually being written when QNUPS first came about. However, those that were completed have generally proved to be useful components of an overall retirement income plan .

Unlike Qualifying Recognised Overseas Pension Schemes (QROPS), there is no notification to HMRC for a QNUPS. It is therefore important to ensure that any scheme used as a QNUPS meets all of the relevant legislative requirements. The requirements for a QNUPS were set out in Statutory Instrument No. 51 in 2010 (to be effective from 6th April 2006) and no changes to these requirements have been made since.

Ensuring your QNUPS is a QNUPS

A QNUPS is likely to raise concerns with HMRC if the contribution(s) into it are proven not to have been made for genuine retirement planning. Therefore, it is critically important to evidence this requirement.

In an ideal scenario an individual would discuss their pension shortfall with their adviser, and the adviser would obtain a calculation of benefits. In a perfect world this would be from an actuary or similar qualified individual and would detail how to meet that shortfall based on the individual’s risk profile and future expectations. Following this, the individual would invest the recommended amount into a QNUPS and plan to start taking an income on retirement. Documenting this fully and ensuring the non-UK scheme meets the QNUPS requirements should ensure that contributions are outside the client’s estate for IHT purposes.

While much has been talked about of the advantages of a QNUPS, it is worthwhile looking at the potential consequences of HMRC deciding that the scheme, or the contribution(s) into it, do not meet the QNUPS requirements to be exempt from IHT.

If HMRC decide that a scheme is not a QNUPS, the contribution(s) could be deemed a payment to a discretionary trust, with the tax implications of such. In addition, as the person contributing is able to benefit themselves, it will be deemed a Gift With Reservation of Benefit (GWROB) and consequently any IHT benefits will be nullified.

In summary, it is sensible to document that a QNUPS is made for the purpose of retirement planning by evidencing a target benefit calculation and by ensuring that it meets HMRC’s QNUPS requirements by way of its Deed and Rules.

Why use Boal & Co for QNUPs?

By combining the Isle of Man's focused pensions legislation, 25 years’ experience in pension administration and in-house actuarial expertise, Boal & Co offers an all-encompassing QNUPS solution by way of the Trinity Pension Scheme.

Aimed at UK residents and expatriates where a local scheme is not suitable or available, Trinity is designed to meet all the requirements of HMRC’s QNUPS legislation while providing access to a pension income, as and when required, via drawdown. No tax is deducted at source on any benefit payments to members (other than IOM residents), and there is no IOM tax on death.

Boal & Co’s Actuarial Department provides calculations to assist with the advice on contribution amounts to meet retirement income requirements and to demonstrate the legitimate purpose of the QNUPS.

Constant changes around pensions, and in particular international pensions, certainly require good professional advice, as the consequence of doing things in the wrong way is likely to result in an unexpected tax bill.

Case Study

James, a 45 year old UK domicile living overseas, is a member of an international pension plan with his employer that will provide him with a lump sum when he leaves employment. He intends to retire back to the UK (although this may change) and would like to start saving for his retirement at age 60. He wants to put away a yearly amount from his bonus and also has savings of £200,000 that he wishes to contribute.

James calculates that he would need c £40,000 per annum at retirement and wants to start saving specifically for this. He meets with his adviser to discuss how to do so.

Having agreed their expectations of future inflation and likely investment return, James and his adviser ask Boal & Co’s Actuarial Department to calculate the contribution(s) needed to meet the £40,000 per annum requirement on retirement. Boal & Co’s Actuaries calculate that an amount of £20,657 per annum for fifteen years would be required to fund this, using the assumptions provided by the adviser. *

James makes the contribution into Trinity (A Boal & Co QNUPS) and agrees to meet with his adviser each year to monitor the performance against the assumptions and make any adjustments required. The £200,000 initial investment and each annual contribution is immediately outside James’ estate for IHT purposes.