Qnups in retirement planning: a case study on Peter

30 Jan 17

In this second instalment on Qnups in wealth planning, the director of Isle of Man-based pension provider Optimus, Martin Hall, runs through a case study where Qnups are the right solution for the client.

In particular:

• The properties held in the offshore trust are standing at a loss and the personally held properties, being recently purchased were standing at little or no gain as a result of the flat market since purchase. As a result there will be no exposure to CGT on the transfer into the Qnups.

• There will be no income tax relief on the contribution but the contribution is not limited in value by the lifetime or annual allowances.

• The initial charge for IHT purposes does not apply to the contribution of the properties into the Qnups because there is no transfer of value from Peter or, until April 2017, from the trust.

• On the basis that the Qnups has been established to provide bona fide pension benefits to Peter there is no element of bounty involved and so the Qnups would not be classified as a settlor interested trust. Income arising to the Qnups would not, therefore, be treated as Peter’s income.

• There does not appear to be any practical way that the transfer of assets abroad provisions can be applied to the contribution.

• The properties under the current offshore trust arrangement are held via a special purpose company and as such the rental income is taxed at 20%. The amount of income that is taxed is reduced somewhat through the non-resident landlord scheme. Peter can simply transfer the company to the Qnups and thereafter enjoy the same tax treatment as through the previous offshore trust ownership. The transfer of the non-resident company from the offshore trust to the Qnups will not be subject to SDLT.

• Income from Peter’s personally held properties is taxed at 45%. Once transferred into the Qnups, they will also be held in the special purpose company with the rental income taxed at 20% and benefiting from the non-resident landlord scheme. The properties are let to unconnected parties on market terms and so relief from ATED can be applied for.

• If the Qnup trustees were to sell the properties at a later date for a gain, CGT will not apply because an overseas pension scheme such as the Qnups is exempt from the non-resident CGT charge.

• The value in the Qnups will not fall within Peter’s estate for IHT purposes. An interest in such a scheme is not relevant to property and, as such, is immune from the 10 year charge and exit charge.