News | September 23, 2021


Having come into existence over a decade ago, Qualifying Non – UK Pension Schemes (“QNUPS”) have dwindled in popularity but in recent months we have seen a resurgence in this retirement benefits vehicle as more and more ex-pats look to make legitimate plans for their retirement. Below we take a look at the key features of QNUPS and examine how, if structured properly, they can provide significant tax benefits.

QNUPS were introduced by HM Revenue & Customs via regulations released on 15 February 2010. Broadly speaking, a QNUPS is an unapproved overseas pension scheme that needs to meet certain UK/HMRC legislative conditions. These conditions include: establishment (outside the UK) in a country that regulates pension schemes; being open to residents and non-residents in the country or territory in which it is established; the scheme being approved or recognised or registered with the relevant tax authorities in the country or territory in which it is established; and access to benefits only possible on and after normal pension age (currently 55 years).
Main features of a QNUPS
As a bona-fide pension scheme, QNUPS offer the opportunity for UK residents and non-residents to build up retirement savings outside of the UK and later enjoy the benefits, whether or not they are then living in the UK. In summary, the main features of a QNUPS are as follows: death benefits, if paid within two years of death, will in general not be subject to UK Inheritance Tax (“IHT”). For many, this is seen as the main attraction of a QNUPS and there are significant adverse tax consequences if a QNUPS is used primarily as a means of sheltering assets to avoid IHT rather than provision of pension benefit – see “Tax Considerations – IHT” below for further detail on this; a QNUPS is normally established under a trust with attaching scheme rules (in a similar way to a UK registered pension scheme). Lump sum death benefits would normally be paid by the trustees of the QNUPS exercising their discretion in favour of a beneficiary under the rules; generally the QNUPS must provide for at least 70% of the member’s relevant scheme funds to provide an income for life (the other 30% can be taken as a commutation lump sum at the point of drawdown) and must be payable no earlier than age 55. However, in some jurisdictions, there is no need to comply with the 70% income for life requirement thereby allowing the member to draw-down benefits in stages in a similar way to the UK’s flexi-access drawdown system; many QNUPS providers offer wide investment flexibility. Investments can range from commercial property, residential property (generally prohibited under UK registered pension schemes), insurance based products, shares and bonds to more personal investments such as fine wines, antiques and classic cars; QNUPS tends to be flexible in terms of currencies meaning that the risks associated with exchange rate fluctuations can be managed; there is no age restriction on investing into a QNUPS; and QNUPS can be structured in a way that avoids local wealth and death taxes thereby providing more flexibility and choice over who inherits the pension assets.
What are the reporting requirements?
A QNUPS currently has no ongoing reporting requirements to HMRC. However, where a QNUPS is also classified as a Qualifying Recognised Overseas Pension Scheme (“QROPS”) – a type of overseas pension scheme which is typically used to receive transfers from UK registered pension schemes re. individuals who are departing the UK and keen to take their pension savings with them – there are reporting requirements to HMRC.
Contributions to a QNUPS
Generally, contributions to a QNUPS do not attract tax relief. However, domestic tax relief on contributions to a QNUPS may be available if the member is resident in the country in which the QNUPS is established. Local advice would be needed to assess this possibility. Contributions are not assessed against either the UK’s Annual Allowance (tax year 2021/22 – £40,000) or Lifetime Allowance (tax year 2021/22 £1,073,100) which means that there is often no maximum amount that can be contributed. However, contribution levels should be consistent with retirement planning and reasonable in order to ensure IHT efficiency. There should be no over-funding (see “Tax Considerations – IHT” below for further details).
Taking benefits from a QNUPS
It is vital that the QNUPS operates as a bona-fide pension scheme (i.e. provide an income in retirement which commences at or over age 55). Falling foul of this condition will inevitably lead to adverse tax consequences. As mentioned above, 30% of the QNUPS may be taken as a lump sum with the other 70% being used to provide an income in retirement. However, depending on the rules of the jurisdiction in which the QNUPS is established it may be possible to elect to have further lump sums paid at periodic intervals similar to the UK’s flexi-access drawdown system. Local advice would be needed to assess this possibility
Tax considerationsIncome Tax and Capital Gains Tax – accrual within the QNUPS
Generally the jurisdiction in which the QNUPS is set up will not seek to impose income tax or capital gains tax on the accrual of benefits/investment return  within the fund. Local advice would be needed to confirm this.
Tax considerations – Income tax – drawing down benefits from the QNUPS
At the point of taking benefits from the QNUPS, income tax may be levied by the country of residence at that point. Local advice would be needed to confirm this.
Tax considerations – IHT
As mentioned above, any death benefits emanating from a QNUPS paid within two years of the date of death, will in general not be subject to UK IHT. However, if HMRC believe that investments into a QNUPS have been made for the direct purpose of avoiding an IHT liability, then the IHT exemption may not be available and your beneficiaries would have to pay IHT after all. Unfortunately there is no specific guidance on what is deemed reasonable but if contribution levels are prescribed in local pension laws for the jurisdiction in which the QNUPS is established, and if they are broadly similar to UK  pension rules, such levels are likely to be considered reasonable. It is, however, advisable to seek advice from an actuary or a suitably qualified adviser on contribution levels based on their risk profile and future expectations before establishing a QNUPS.