New tax planning opportunities for British expatriates

By DAVID FRANKS [email protected]

David Franks is an accomplished and experienced practitioner in both UK and overseas taxation. He lectures widely on taxation issues, in particular in relation to investment planning. David holds the Investment Management Certificate and is the Chief Executive and Finance Director of the Blevins Franks Group.

On February 15 2010, a new UK HM Revenue & Customs (HMRC) statutory instrument came into force, the implications of which create significant opportunities for British expatriates to save local taxes in the country in which they are tax resident as well as UK inheritance tax (IHT).

The UK legislation has now created a new type of trust known as Qualifying Non-UK Pension Schemes (QNUPS), which should not be confused with Qualifying Recognised Overseas Pension Schemes (QROPS) (see below).

As pension schemes are one of the key ways that most governments incentivise their citizens to save for their retirement, the tax rules are generally more favourable than other investment structures.  

The problem for most retired expatriates is that they believe that their days of being able to put money into pension schemes are behind them; however QNUPS may significantly change many retired expatriates’ view on this.

Firstly, there is no maximum age at which you can invest in a QNUPS.

Secondly, you do not need to have any earned income from an employment in order to make a contribution.

Thirdly, there is no maximum contribution that can be made into a QNUPS.

The rules are sufficiently flexible to allow someone who is 85 years of age and has been retired for 25 years to put large investments into a QNUPS and immediately create significant tax advantages for themselves.  

So what benefits do QNUPS give to retired British expatriates?

The main thing to remember is that a QNUPS is a pension scheme trust, and as such, you are entitled to take a cash lump sum and income during your lifetime, with the remainder of your fund being able to be passed to your spouse or heirs on your death, free from all taxes.

The following advantages are available to you through a QNUPS:

• As a pension scheme, a QNUPS is very tax efficient in most countries as it can avoid both local wealth taxes during your lifetime and succession taxes on your death.

• A QNUPS also avoids local succession law, so that you are free to choose exactly who inherits your money and in what shares.

• Income can be taken from age 55 (after April 6 2010) or it can be deferred as it does not need to be taken until age 75. In certain countries, it can be paid in a manner where a significant portion can be paid to you tax free.

• When income is taken, it is drawn down from the fund, thus leaving your scheme assets invested. Otherwise the assets grow free from tax.

• On death, the value of the QNUPS will be exempt from UK inheritance tax and local succession taxes.

• A QNUPS offers considerable investment flexibility and choice. Furthermore, your assets can be invested and any benefits taken in a currency of your choice, giving you the opportunity to remove currency risk.

• The trustees of a QNUPS have no reporting obligations to HMRC unless the scheme also holds any assets transferred from an authorised UK pension scheme.  You can have both a QROPS and a QNUPS.

In essence, QNUPS allow retired British expatriates to put their investable wealth into a pension structure and significantly improve their personal tax position as a result.

Solving the UK inheritance tax conundrum with


The only way to avoid UK inheritance tax is to become a non-UK domicile, which is NOT the same thing as becoming a non-UK resident. It can be very difficult to shrug off your UK domicile even though you may have lived overseas for many years and so your estate on death can be liable for tax of 40 per cent (or probably more if a Labour Government is re-elected).

QNUPS immediately solves this problem even if you were to return to live in the UK. In fact, it avoids the tax even if you never left the UK to live overseas in the first place. You do not have to wait seven years to avoid the tax (which is the case under the PET or potentially exempt gift rules), and you do not have to give the assets away either. You and your spouse or partner can continue to benefit from the assets. It couldn’t be better!

What is the difference between a QNUPS and a QROPS?

A QROPS is actually a type of QNUPS. QROPS can be an extremely attractive way of protecting your existing UK pension assets from tax in your country of residence and from UK taxes on you death. As a QNUPS is a pension trust, it will pay out benefits in a similar manner to QROPS, with two key differences:

1) A QNUPS is immediately exempt from UK taxes on death whereas QROPS are only exempt after five full tax years of non-residency;

2) Transfers into QNUPS are from non-pension assets or investable wealth, whereas QROPS are designed specifically for transfers from existing UK pension schemes.

Seek advice from a wealth management and tax advisory firm like Blevins Franks to establish if a QNUPS would be appropriate for you.

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