So what is a QNUPS?
A QNUPS is a pension scheme established in a country outside of the UK to provide retirement benefits and while it’s not a registered UK pension scheme, it does adhere to certain UK regulations (namely the UK inheritance tax (Qualifying Non-UK Pension Schemes) Regulations 2010). These regulations require that Gibraltar QNUPS:
- Are recognised for tax purposes under Gibraltar’s tax legislation. This effectively means that:
o QNUPS are open to Gibraltar residents and non-residents,
o Benefits paid to members are taxable in Gibraltar (at 2.5% see below), and
o QNUPS are approved by the Gibraltar Tax Office.
- Cannot commute more than 30% of the value, retaining at least 70% for the purpose of providing the member with an income for life, and
- Cannot pay out benefits before normal minimum retirement age of 55, unless retirement occurs on the grounds of ill health.
What benefits can QNUPS offer?
QNUPS provide another and often more flexible option when planning for retirement. Specifically they:
- Are particularly useful as a “top up” pension if an individual has already made sufficient provision for their retirement. For example, in the UK each individual has an “annual allowance”, this is the amount that he/she can put into registered pension scheme(s) and receive UK tax relief. The annual allowance for 2014/15 is £40,000. UK tax is due on any pension savings for a tax year that are above this allowance.
- Do not attract tax relief and as such there is no prescribed limit on contributions to a QNUPS. Contributions do however have to be realistic, bearing in mind an individual’s overall wealth and the appropriate level of retirement benefits including any existing pension provisions they may have. The QNUPS trustees may have the right to insist on an actuarial calculation and report to justify the level of contributions.
- Can receive contributions at any time, but they must be for the purpose of providing retirement benefits. If instead, for example, it is deemed that the reason for the contributions is tax avoidance the pension scheme will not achieve QNUPS status.
- Can invest in a wide range of assets including cash, shares, artwork and property.
- Can provide tax free roll up of wealth within the fund. In Gibraltar, no tax would be due on any investment income of the QNUPS or on any capital gains made.
- Are (as pension funds) expected to be excluded from the proposed scope of the new UK capital gains tax (CGT) regime for imposing UK CGT on disposals by non-residents of UK residential property.
- Can distribute any remaining funds on the death of the member to the beneficiaries. No inheritance tax (IHT) should be due on such distributions in Gibraltar or in the UK. As QNUPS are currently outside the scope of UK IHT this offers potential benefits to those who may otherwise have assets liable to UK IHT (for example, UK expatriates who have remained UK domiciled, resulting in them remaining liable to UK IHT on their worldwide estate, or non-UK domiciled individuals who have assets in the UK which are liable to UK IHT).
- Are not subject to HMRC reporting and are outside the scope of the UK’s unauthorised payments regime, which can impose UK charges of up to 55% on pension payments.
In the UK’s March 2014 Budget, it was announced that it will consult on ways in which to give equivalent treatment to QNUPS and UK registered pension schemes with legislation to be introduced in Finance Bill 2015, we await further detail on this.
So how is a QNUPS taxed in Gibraltar?
Investment income arising within a QNUPS benefits from the exemption from Gibraltar income tax for approved pension schemes, so the assets can grow income tax free in Gibraltar. Furthermore, as Gibraltar has no IHT, CGT, gift or wealth taxes, it is a very tax efficient jurisdiction for locating pension investments.
Pension income paid from the QNUPS forms part of an individual’s assessable income and is taxed at a low rate of 2.5% in so far as it forms part of their taxable income (e.g. after any available tax allowances). A tax free lump sum payment of up to 30% is available in Gibraltar. This is the same Gibraltar tax law that applies to Gibraltar QROPS.
Lynette Chaudhary is international tax manager at STM Fidecs in Gibraltar
