The Isle of Man is poised to challenge Guernsey’s dominance of the UK Crown Dependency QROPS market as early as this month, as its legislature is expected to consider a new type of international pension structure open to residents and non residents,
Unlike existing pension products available on the Isle of Man, this new pension product would enable non-IoM residents to avoid having to pay 20% tax on income – as is already the case with non-resident pension schemes in Guernsey and certain other jurisdictions that are popular with QROPS providers.
Such jurisdictions offer the zero-percent tax rate to non-locals on the understanding that some tax is ultimately paid to the country in which the relevant pensioner currently resides. Isle of Man QROPS administrators have been lobbying persistently for this tax – which in the last budget was raised from 18% – to be removed for non-residents, in order to be more competitive.
Tynwald will formally consider the new pension structure at its next scheduled three-day session, which begins on 19 October, IoM QROPS industry sources told International Adviser. Because the new pension is constructed as an amendment to existing pension regulations, it could be available for use by pension administrators within days of Tynwald’s approval, which is widely expected, these sources added.
It was not clear at presstime whether HM Revenue & Customs will classify the new pension product as a QROPS, but if it does, there would be a time lag of several weeks to months before it would receive this designation.
Government officials declined to comment, citing Tynwald regulations that require members to be fully informed of such matters before other parties are briefed.
News of the changes to IoM tax legislation comes as Jersey officials continue to work on changes to that island’s pension’s legislation that are intended to enable it to offer QROPS to non-Jersey residents for the first time.
QROPS, or qualifying recognised overseas pension schemes, are a type of international pension scheme located outside Britain that HMRC deems acceptable for former UK residents to transfer their UK pensions to. Guernsey dominates this market, and sources there say it has benefited from a surge in transfers over the last 12 months.
In addition to now being taxed at 20%, the same rate as Isle of Man residents’ pensions, the pension income of non-resident Brits living outside the UK also no longer enjoy a non-resident’s allowance of £2,120, which was abolished in the last budget. The 20% tax has been a thorn in the side of the Isle of Man’s QROPS industry, which evolved after the UK overhauled its pensions legislation in 2006, now known as A Day.
For expert QROPS advice go to http://www.qrops-advisers.com or call 01664 444625
http://www.international-adviser.com/article/isle-of-man-set-to-challenge-qrops-market-with-new-product
Thursday, 3 February 2011
Selecting the right adviser can minimise QROPS risk
Recent events, including the action taken by HMRC against an unregulated QROPS scheme operating in Hong Kong, have focused attention on the risks to internationally mobile individuals seeking to transfer their UK pension funds out of the UK.
In our view, a client who is seeking advice on QROPS will benefit from engaging a fee-based, independent adviser who will undertake the following:
•Assess the suitability of QROPS to each client on a case-by-case basis and in a number of cases, best advice will be to leave the pension fund in the UK.
•Identify which QROPS jurisdiction is most suitable to the client’s circumstances. For example, should they utilise a scheme operated in the EU rather than a Channel Islands based scheme?
•Identify which QROPS provider to recommend. The adviser should demonstrate what due diligence has been undertaken on the provider. For instance, if the provider is privately-owned, who are the shareholders and what is the track record in pension administration?
•Confirm all advice in writing in a ‘QROPS Suitability Report’ which will also confirm the set up and ongoing fees to be incurred. The fees charged should be 100% transparent and the cost of advice should be unbundled and distinct from the QROPS plan charges.
The pension advice process referred to above is standard practice among most UK-based advisers, and would serve to protect the interests of internationally mobile clients and help put a stop to clients taking up unsuitable schemes.
For expert QROPS advice go to http://www.qrops-advisers.com or call 01664 444625
http://www.international-adviser.com/article/selecting-the-right-adviser-can-minimise-qrops-risk
In our view, a client who is seeking advice on QROPS will benefit from engaging a fee-based, independent adviser who will undertake the following:
•Assess the suitability of QROPS to each client on a case-by-case basis and in a number of cases, best advice will be to leave the pension fund in the UK.
•Identify which QROPS jurisdiction is most suitable to the client’s circumstances. For example, should they utilise a scheme operated in the EU rather than a Channel Islands based scheme?
•Identify which QROPS provider to recommend. The adviser should demonstrate what due diligence has been undertaken on the provider. For instance, if the provider is privately-owned, who are the shareholders and what is the track record in pension administration?
•Confirm all advice in writing in a ‘QROPS Suitability Report’ which will also confirm the set up and ongoing fees to be incurred. The fees charged should be 100% transparent and the cost of advice should be unbundled and distinct from the QROPS plan charges.
The pension advice process referred to above is standard practice among most UK-based advisers, and would serve to protect the interests of internationally mobile clients and help put a stop to clients taking up unsuitable schemes.
For expert QROPS advice go to http://www.qrops-advisers.com or call 01664 444625
http://www.international-adviser.com/article/selecting-the-right-adviser-can-minimise-qrops-risk
FEIFA counsels advisers on EU passporting but warns of "major issues"
FEIFA CEO Paul Stanfield has warned advisers thinking of passporting their business back into the UK post RDR to carefully consider all the implications before taking any action.
Stanfield, who launched the Federation of European Independent Financial Advisers in August last year, was in part responding to a recent suggestion by the Association of Independent Financial Advisers that IFAs should not rule out passporting back into the UK post the RDR. He said while FEIFA had been receiving some enquiries about passporting previously this had increased owing to these comments.
He warned, while in some cases this cause of action could be beneficial to an IFA firm, there were a number of serious and far reaching considerations which need to be taken into account before such a decision is made. Stanfield said these can be broken down into a number of “headings” which include: regulatory and legislative, costs and savings and competitive considerations.
Foremost of Stanfield’s regulatory and legislative considerations was the need for the adviser to establish under which rules it would passport, either Freedom of Services or Freedom of Establishment, as this will dictate where an adviser can be based, live and the types of employment regulations under which the firm is governed.
Stanfield also warned on the cost implications of moving abroad as, while the IFA would no longer need to pay any FSCS levy, if an office is required in another EU state this will generate costs and possibly greater liabilities in areas such as staff benefits and entitlements.
However, one of the biggest considerations highlighted by Stanfield was the potential commercial implications of such a move. Stanfield said: “In all of this, an IFA evidently needs to ensure that the location of their regulatory status does not put them at a commercial disadvantage to direct competitors.
“This involves an appraisal of both the “image” of their regulatory status and proposed new jurisdiction, as well as assessing the perception of no FOS or FSCS in the eyes of clients. Of course, similar, if not even greater client protection may be available via regulation in another EU State, but potential language barriers may be seen very negatively by some clients.”
On a positive note, Stanfield said a move to another EU jurisdiction could open new business avenues for the IFA not least of all cross border pension advice such as QROPS.
http://www.international-adviser.com/article/feifa-counsels-advisers-on-eu-passporting-but-warns-of-major-issues
http://www.qrops-advisers.com
Stanfield, who launched the Federation of European Independent Financial Advisers in August last year, was in part responding to a recent suggestion by the Association of Independent Financial Advisers that IFAs should not rule out passporting back into the UK post the RDR. He said while FEIFA had been receiving some enquiries about passporting previously this had increased owing to these comments.
He warned, while in some cases this cause of action could be beneficial to an IFA firm, there were a number of serious and far reaching considerations which need to be taken into account before such a decision is made. Stanfield said these can be broken down into a number of “headings” which include: regulatory and legislative, costs and savings and competitive considerations.
Foremost of Stanfield’s regulatory and legislative considerations was the need for the adviser to establish under which rules it would passport, either Freedom of Services or Freedom of Establishment, as this will dictate where an adviser can be based, live and the types of employment regulations under which the firm is governed.
Stanfield also warned on the cost implications of moving abroad as, while the IFA would no longer need to pay any FSCS levy, if an office is required in another EU state this will generate costs and possibly greater liabilities in areas such as staff benefits and entitlements.
However, one of the biggest considerations highlighted by Stanfield was the potential commercial implications of such a move. Stanfield said: “In all of this, an IFA evidently needs to ensure that the location of their regulatory status does not put them at a commercial disadvantage to direct competitors.
“This involves an appraisal of both the “image” of their regulatory status and proposed new jurisdiction, as well as assessing the perception of no FOS or FSCS in the eyes of clients. Of course, similar, if not even greater client protection may be available via regulation in another EU State, but potential language barriers may be seen very negatively by some clients.”
On a positive note, Stanfield said a move to another EU jurisdiction could open new business avenues for the IFA not least of all cross border pension advice such as QROPS.
http://www.international-adviser.com/article/feifa-counsels-advisers-on-eu-passporting-but-warns-of-major-issues
http://www.qrops-advisers.com
Guernsey to introduce 30% pension lump sum to boost QROPS sector
Guernsey appears set to raise to 30% its pension commencement lump sum - or tax-free cash as it used to be known - next year in order to match Jersey and the Isle of Man.
A proposal to increase the current 25% level has been through several stages of the pre-legislative process and is awaiting a date to be voted on in the States of Guernsey, the island’s parliament.
The main driver for the change is to make Guernsey’s pension rules as attractive as those of its Crown Dependency neighbours from an international perspective, primarily the QROPS market.
Local pension companies expect the change – the passage of which onto the statute books is said to be a formality - to be made before 2011.
Roger Berry, managing director of Guernsey QROPS provider the Concept Group and chairman of the local pension trade body’s QROPS committee, said: “There’s absolutely no reason why Guernsey should not offer a 30% pension commencement lump sum as part of a modern pension regime and create a level playing field with the other Crown Dependencies.”
In July, International Adviser revealed that Jersey was hoping to pass legislation to kick-start its own QROPS industry by 2011.
http://www.international-adviser.com/article/guernsey-to-introduce-30-pension-lump-sum-to-boost-qrops-sector
http://www.qrops-advers.com
A proposal to increase the current 25% level has been through several stages of the pre-legislative process and is awaiting a date to be voted on in the States of Guernsey, the island’s parliament.
The main driver for the change is to make Guernsey’s pension rules as attractive as those of its Crown Dependency neighbours from an international perspective, primarily the QROPS market.
Local pension companies expect the change – the passage of which onto the statute books is said to be a formality - to be made before 2011.
Roger Berry, managing director of Guernsey QROPS provider the Concept Group and chairman of the local pension trade body’s QROPS committee, said: “There’s absolutely no reason why Guernsey should not offer a 30% pension commencement lump sum as part of a modern pension regime and create a level playing field with the other Crown Dependencies.”
In July, International Adviser revealed that Jersey was hoping to pass legislation to kick-start its own QROPS industry by 2011.
http://www.international-adviser.com/article/guernsey-to-introduce-30-pension-lump-sum-to-boost-qrops-sector
http://www.qrops-advers.com
QROPS Advice
Australia has abolished its so-called Foreign Investment Fund regime and in the process, has made choosing whether to move UK pensions there more complex, QROPS experts say.
The repeal of the Foreign Investment Fund (FIF) rules, which had been expected, is seen as benefittng offshore retirement funds, such as Qualifying Recognised Overseas Pension Schemes (QROPS), by reducing onerous reporting duties and tax burdens that until now have been a headache for UK expatriates who have moved to Australia for good.
However, QROPS experts say, it makes advising Britons and returning Australians who are considering moving their pensions to Australia more tricky, because major disincentives to moving pensions back to the UK remain.
“It is a complete and utter minefield” for advisers now, said Geraint Davies, managing director of Surrey, England-based Montfort International, a QROPS provider.
According to Davies, even though the abolition of the FIF regime is essentially a positive development for Australia-resident investors, IFAs must ensure that they are up to speed not only on the new regulations and how they could affect an Australian QROPs, but also on their individual clients’ plans, and their potential to change their minds at some point and wish to return to Britain.
As reported, the FIF regime, which dates back to the late 1980s and was a wide-ranging anti-avoidance regime aimed at preventing Australian residents from deferring tax through the use of overseas investments, is being replaced by a more narrowly-defined anti-avoidance rule.
“If an adviser does not understand how the regime works, and its consequences, he could end up putting his client’s QROPs in the wrong jurisdiction, and could have problems all over the place if that client later comes back and says he was given the wrong advice,” Davies adds.
“Let’s say you advised someone to move their pension to Australia, and failed to tell them that there is no reverse gear, that they can’t move it back to the UK; or that you recommended that they put their money into a fund that is going to cause tax problems. Would it be reasonable to have expected that you would have understood and factored in the Australian rules [when giving this advice]? – Yes.
“It just shows how complicated this really is.”
QROPS expert Rex Cowley, who is head of marketing at Close International, said the change to the Australian tax regime was “a reminder of the fluidity of tax systems around the world” and how such changes may affect individuals.
“For anybody looking to hold a QROPS, they need to remember that the implications on tax are typically three-dimensional,” he added. “In other words, they need to be cognisant of the implication from a UK perspective, the jurisdiction in which the QROPS is domiciled and the tax environment in their country of residence.
“This again shows the complexity of International pension planning and anyone looking to transfer their UK pension to a QROPS should only do so under advice."
http://www.international-adviser.com/article/qrops-experts-urge-ifa-caution-as-australia-changes-tax-regime
www.qrops-advisers.com
The repeal of the Foreign Investment Fund (FIF) rules, which had been expected, is seen as benefittng offshore retirement funds, such as Qualifying Recognised Overseas Pension Schemes (QROPS), by reducing onerous reporting duties and tax burdens that until now have been a headache for UK expatriates who have moved to Australia for good.
However, QROPS experts say, it makes advising Britons and returning Australians who are considering moving their pensions to Australia more tricky, because major disincentives to moving pensions back to the UK remain.
“It is a complete and utter minefield” for advisers now, said Geraint Davies, managing director of Surrey, England-based Montfort International, a QROPS provider.
According to Davies, even though the abolition of the FIF regime is essentially a positive development for Australia-resident investors, IFAs must ensure that they are up to speed not only on the new regulations and how they could affect an Australian QROPs, but also on their individual clients’ plans, and their potential to change their minds at some point and wish to return to Britain.
As reported, the FIF regime, which dates back to the late 1980s and was a wide-ranging anti-avoidance regime aimed at preventing Australian residents from deferring tax through the use of overseas investments, is being replaced by a more narrowly-defined anti-avoidance rule.
“If an adviser does not understand how the regime works, and its consequences, he could end up putting his client’s QROPs in the wrong jurisdiction, and could have problems all over the place if that client later comes back and says he was given the wrong advice,” Davies adds.
“Let’s say you advised someone to move their pension to Australia, and failed to tell them that there is no reverse gear, that they can’t move it back to the UK; or that you recommended that they put their money into a fund that is going to cause tax problems. Would it be reasonable to have expected that you would have understood and factored in the Australian rules [when giving this advice]? – Yes.
“It just shows how complicated this really is.”
QROPS expert Rex Cowley, who is head of marketing at Close International, said the change to the Australian tax regime was “a reminder of the fluidity of tax systems around the world” and how such changes may affect individuals.
“For anybody looking to hold a QROPS, they need to remember that the implications on tax are typically three-dimensional,” he added. “In other words, they need to be cognisant of the implication from a UK perspective, the jurisdiction in which the QROPS is domiciled and the tax environment in their country of residence.
“This again shows the complexity of International pension planning and anyone looking to transfer their UK pension to a QROPS should only do so under advice."
http://www.international-adviser.com/article/qrops-experts-urge-ifa-caution-as-australia-changes-tax-regime
www.qrops-advisers.com
Tuesday, 17 August 2010
New Zealand QROPS
Much has been written about Qualifying Recognised Overseas Pension Schemes (QROPS) in the press and on the web. Some of the articles I have seen are helpful and accurate, others are less so. The purpose of this article is to set out how QROPS in New Zealand operate in the context of UK and New Zealand law.
The relevant UK law is to be found in the Finance Act 2004, and the accompanying regulations, in particular “The Pension Schemes (Categories of Country and Requirements for Overseas Pension Schemes and Recognised Overseas Pension Schemes) Regulations 2006” (SI 2006 / 206). New Zealand law is to be found in the Superannuation Schemes Act 1989.
The key attractions in transferring UK pension rights to a QROPS are the avoidance of the effective compulsion to secure income with an annuity by age 75, and the ability to pass on the benefit of the member’s pension fund to nominated beneficiaries after death without the burden of taxation.
New Zealand schemes are also able to offer capital distributions beyond the levels available from UK schemes and beyond the levels available from most other QROPS jurisdictions.
Some QROPS trustees in other jurisdictions have been rather disingenuous about how New Zealand pension schemes work and their QROPS status. It is time to set that record straight.
Setting the record straightIn terms of SI 2006/206 a key condition is that of tax recognition. By that is meant tax recognition in the country where the QROPS operates.
The tax recognition requirements are described as Primary conditions 1 and 2, and conditions A and B. To meet the tax recognition requirements the overseas scheme must meet both Primary conditions, and one of conditions A and B.
Primary condition 1 states the overseas scheme must be “open to persons resident in the country or territory in which it is established”. New Zealand Superannuation schemes and Kiwisaver Schemes are open to New Zealand residents.
Primary condition 2 is concerned with how local residents (New Zealand residents in this instance) receive tax privileges on their pension savings. In other words the nature of the New Zealand pensions system.
There are two possibilities that each satisfy Primary Condition 2:
(i) A system where local residents get tax relief on their pension contributions, and benefits when taken are taxed or
(ii) A system where local residents do not get tax relief on their pension contributions and benefits when taken are not taxed.
New Zealand resident members of New Zealand pension schemes do not receive tax relief on contributions and are not taxed on the emerging benefits. On achieving the scheme retirement age a retirement benefit may be taken from the scheme as income or as a capital sum. New Zealand schemes therefore satisfy Primary condition 2.
However, New Zealand pension funds are taxed on income and capital gains. The provisions are complex and depend on the asset make-up of the fund. But to think in terms of an effective tax charge of about 1.5% p.a. on the fund value is about right. The New Zealand government is expected to remove this tax charge later this year.
Now to Conditions A and B - the overseas scheme only has to meet one of these.
Condition A is that the overseas scheme “is approved or recognised by, or registered with, the relevant tax authorities as a pension scheme in the country or territory in which it is established”.
New Zealand pension schemes meet this requirement so we need not trouble ourselves with Condition B.
This is because Condition B only applies if “no system exists for the approval or recognition by, or registration with, relevant tax authorities of pension schemes in the country or territory in which it is established” and sets out that in the absence of such a “system” the overseas scheme must provide that at least 70% of the fund is available to provide an income for life (the 70% rule)
The relevant UK law is to be found in the Finance Act 2004, and the accompanying regulations, in particular “The Pension Schemes (Categories of Country and Requirements for Overseas Pension Schemes and Recognised Overseas Pension Schemes) Regulations 2006” (SI 2006 / 206). New Zealand law is to be found in the Superannuation Schemes Act 1989.
The key attractions in transferring UK pension rights to a QROPS are the avoidance of the effective compulsion to secure income with an annuity by age 75, and the ability to pass on the benefit of the member’s pension fund to nominated beneficiaries after death without the burden of taxation.
New Zealand schemes are also able to offer capital distributions beyond the levels available from UK schemes and beyond the levels available from most other QROPS jurisdictions.
Some QROPS trustees in other jurisdictions have been rather disingenuous about how New Zealand pension schemes work and their QROPS status. It is time to set that record straight.
Setting the record straightIn terms of SI 2006/206 a key condition is that of tax recognition. By that is meant tax recognition in the country where the QROPS operates.
The tax recognition requirements are described as Primary conditions 1 and 2, and conditions A and B. To meet the tax recognition requirements the overseas scheme must meet both Primary conditions, and one of conditions A and B.
Primary condition 1 states the overseas scheme must be “open to persons resident in the country or territory in which it is established”. New Zealand Superannuation schemes and Kiwisaver Schemes are open to New Zealand residents.
Primary condition 2 is concerned with how local residents (New Zealand residents in this instance) receive tax privileges on their pension savings. In other words the nature of the New Zealand pensions system.
There are two possibilities that each satisfy Primary Condition 2:
(i) A system where local residents get tax relief on their pension contributions, and benefits when taken are taxed or
(ii) A system where local residents do not get tax relief on their pension contributions and benefits when taken are not taxed.
New Zealand resident members of New Zealand pension schemes do not receive tax relief on contributions and are not taxed on the emerging benefits. On achieving the scheme retirement age a retirement benefit may be taken from the scheme as income or as a capital sum. New Zealand schemes therefore satisfy Primary condition 2.
However, New Zealand pension funds are taxed on income and capital gains. The provisions are complex and depend on the asset make-up of the fund. But to think in terms of an effective tax charge of about 1.5% p.a. on the fund value is about right. The New Zealand government is expected to remove this tax charge later this year.
Now to Conditions A and B - the overseas scheme only has to meet one of these.
Condition A is that the overseas scheme “is approved or recognised by, or registered with, the relevant tax authorities as a pension scheme in the country or territory in which it is established”.
New Zealand pension schemes meet this requirement so we need not trouble ourselves with Condition B.
This is because Condition B only applies if “no system exists for the approval or recognition by, or registration with, relevant tax authorities of pension schemes in the country or territory in which it is established” and sets out that in the absence of such a “system” the overseas scheme must provide that at least 70% of the fund is available to provide an income for life (the 70% rule)
Wednesday, 9 June 2010
QNUPS
Qualifying Non-UK Pension Schemes - QNUPS
QNUPS were introduced on the 15th February 2010 and came about through amendments detailed in Statutory Instrument 2010/51 relating to the UK Inheritance Tax Act regulations. Before changes were made to the pension tax rules in 2006, protection from UK Inheritance Tax (IHT) applied to certain non-UK pension schemes. When the changes were introduced this exemption was unintentionally omitted which resulted in certain overseas pension schemes losing their IHT exemption. With these amendments both QNUPS & Qualifying Recognised Overseas Pension Schemes (QROPS) now enjoy exemption from
IHT.
The Plan is a tax efficient wrapper for pension assets, all funds within the Plan are free from IHT, there are no tax charges on death and the fund will enjoy tax free roll up. Contributions will be made by the member from taxed income or from personal capital, there is no tax relief on payments into the Plan. Contributions can either be single or regular (subject to minimum limits). There are no limits on the amount that can be contributed to the Plan but any transfers into the Plan must be justifiable in line with the client's overall wealth position. QNUPS are not a deathbed planning tool.
Investment choice within the Plan has very few restrictions. Permissible investments include; equities, bonds, gilts, insurance products, bullion, private & public listed company shares, commercial property and previously excluded investments known as Taxable Property; Taxable Property covers investments such as residential property, antiques, fine wine and collectables. Whilst there are virtually no restrictions on allowable investments it is important to remember that the scheme is a pension plan and a low risk strategy must be pursued.
It is possible for the member to borrow up to 25% of the Plan funds, this must be arranged at a commercial rate of interest (which will be paid to the the Plan) and must be repaid before drawdown can commence. It is also a requirement that security must be held against the loan.
Income will be paid gross from Guernsey and subject to the client's marginal rate of tax in their country of residence. It is important that each client receives tax advice in their country of residence to ascertain the tax position there. A lump sum of up to 25% of the fund can be paid to the member (tax free for UK resident members, clients in other jurisdictions will need to seek advice).
Standard retirement benefits and termination events as follows:
■ Normal Retirement Age of 65;
■ Early Retirement Age of 55;
■ Death & Permanent Disability;
However there may be greater flexibility, determined by an individual's circumstances, which will need to be considered on a case by case basis. The member must start to draw an income by the age of 75.
■ A cash lump sum benefit up to 25% of the Plan value, tax free when paid into the UK;
■ A number of flexible benefit income options to be agreed with the client such as fixed term payments and variable income options.
Upon death of the member, all remaining funds within the scheme will be free of IHT. The funds can then be used to pay a dependants pension, be held in trust for future beneficiaries or be paid as a lump sum. Again, it is vital that the member seeks appropriate taxation advice relevant to both themselves and their potential beneficiaries before registering their wishes for disbursement with the trustee. The trustee retains ultimate discretion on any distribution but the member's wishes will be carefully considered before any decision is made.
The Plan is a pension plan that will appeal to high net worth UK residents seeking an alternative to a traditional pension.
Potential clients may have maximised their UK registered pensions and are looking for alternative options or they may be restricted with the new anti-forestalling rules in the UK and are looking for greater flexibility in their retirement plan. It also provides clients with the peace of mind that all funds can be passed upon death to the member's beneficiaries free from IHT and any withholding taxes in Guernsey.
The Plan will also appeal to UK expats with a QROPS that have been non-UK resident for a minimum of 5 complete tax years and are considering returning to the UK, as a QNUPS will prevent their pension funds once again falling under the UK pension regime.
A number of expats may also still be UK domiciled with a potential liability to UK Inheritance Tax. A transfer of assets to the Plan will provide total protection against this potential liability.
In summary the plan offers the following benefits:
■ No UK Inheritance Tax liability;
■ Up to 25% tax free lump sum at pension commencement;
■ No requirement to purchase an annuity;
■ Tax efficiency: no tax on the pension assets within the Plan; pension income paid gross.
■ All remaining funds within the Plan, following death, can be distributed to chosen beneficiaries;
to make contributions with no lifetime limit;
■ Increased flexibility when taking pension income on retirement;
■ Ability to continue making contributions once drawdown has commenced;
■ Up to 25% of the Plan value can be loaned to the member;
■ Choice of investment management;
■ Wide choice of investments, including residential property;
■ Open to all nationalities;
■ No trustee reporting requirement to HMRC;
Contact Derry Thornalley on 0044 1664 444625
QNUPS were introduced on the 15th February 2010 and came about through amendments detailed in Statutory Instrument 2010/51 relating to the UK Inheritance Tax Act regulations. Before changes were made to the pension tax rules in 2006, protection from UK Inheritance Tax (IHT) applied to certain non-UK pension schemes. When the changes were introduced this exemption was unintentionally omitted which resulted in certain overseas pension schemes losing their IHT exemption. With these amendments both QNUPS & Qualifying Recognised Overseas Pension Schemes (QROPS) now enjoy exemption from
IHT.
The Plan is a tax efficient wrapper for pension assets, all funds within the Plan are free from IHT, there are no tax charges on death and the fund will enjoy tax free roll up. Contributions will be made by the member from taxed income or from personal capital, there is no tax relief on payments into the Plan. Contributions can either be single or regular (subject to minimum limits). There are no limits on the amount that can be contributed to the Plan but any transfers into the Plan must be justifiable in line with the client's overall wealth position. QNUPS are not a deathbed planning tool.
Investment choice within the Plan has very few restrictions. Permissible investments include; equities, bonds, gilts, insurance products, bullion, private & public listed company shares, commercial property and previously excluded investments known as Taxable Property; Taxable Property covers investments such as residential property, antiques, fine wine and collectables. Whilst there are virtually no restrictions on allowable investments it is important to remember that the scheme is a pension plan and a low risk strategy must be pursued.
It is possible for the member to borrow up to 25% of the Plan funds, this must be arranged at a commercial rate of interest (which will be paid to the the Plan) and must be repaid before drawdown can commence. It is also a requirement that security must be held against the loan.
Income will be paid gross from Guernsey and subject to the client's marginal rate of tax in their country of residence. It is important that each client receives tax advice in their country of residence to ascertain the tax position there. A lump sum of up to 25% of the fund can be paid to the member (tax free for UK resident members, clients in other jurisdictions will need to seek advice).
Standard retirement benefits and termination events as follows:
■ Normal Retirement Age of 65;
■ Early Retirement Age of 55;
■ Death & Permanent Disability;
However there may be greater flexibility, determined by an individual's circumstances, which will need to be considered on a case by case basis. The member must start to draw an income by the age of 75.
■ A cash lump sum benefit up to 25% of the Plan value, tax free when paid into the UK;
■ A number of flexible benefit income options to be agreed with the client such as fixed term payments and variable income options.
Upon death of the member, all remaining funds within the scheme will be free of IHT. The funds can then be used to pay a dependants pension, be held in trust for future beneficiaries or be paid as a lump sum. Again, it is vital that the member seeks appropriate taxation advice relevant to both themselves and their potential beneficiaries before registering their wishes for disbursement with the trustee. The trustee retains ultimate discretion on any distribution but the member's wishes will be carefully considered before any decision is made.
The Plan is a pension plan that will appeal to high net worth UK residents seeking an alternative to a traditional pension.
Potential clients may have maximised their UK registered pensions and are looking for alternative options or they may be restricted with the new anti-forestalling rules in the UK and are looking for greater flexibility in their retirement plan. It also provides clients with the peace of mind that all funds can be passed upon death to the member's beneficiaries free from IHT and any withholding taxes in Guernsey.
The Plan will also appeal to UK expats with a QROPS that have been non-UK resident for a minimum of 5 complete tax years and are considering returning to the UK, as a QNUPS will prevent their pension funds once again falling under the UK pension regime.
A number of expats may also still be UK domiciled with a potential liability to UK Inheritance Tax. A transfer of assets to the Plan will provide total protection against this potential liability.
In summary the plan offers the following benefits:
■ No UK Inheritance Tax liability;
■ Up to 25% tax free lump sum at pension commencement;
■ No requirement to purchase an annuity;
■ Tax efficiency: no tax on the pension assets within the Plan; pension income paid gross.
■ All remaining funds within the Plan, following death, can be distributed to chosen beneficiaries;
to make contributions with no lifetime limit;
■ Increased flexibility when taking pension income on retirement;
■ Ability to continue making contributions once drawdown has commenced;
■ Up to 25% of the Plan value can be loaned to the member;
■ Choice of investment management;
■ Wide choice of investments, including residential property;
■ Open to all nationalities;
■ No trustee reporting requirement to HMRC;
Contact Derry Thornalley on 0044 1664 444625
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