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QROPS & QNUPS

QROPS

What are QROPS?

On moving abroad many British expatriates will have left their UK pension arrangements in place. These pensions remain subject to UK pensions law. As a result, the pension income may be subject to UK income tax (20% deducted at source). Additionally, the UK investment restrictions relating to pensions would apply indefinitely and the member payment charges (up to 55%) may apply on death.

Under UK legislation introduced in 2004, effective from April 2006, expatriates or UK residents who have a demonstrable intention to move overseas may transfer the value of their UK pension rights to a non–UK pension scheme and thus potentially avoid most of the normal restrictions imposed on the pension fund if it remained in the UK. The transfer must be made to a Qualifying Recognised Overseas Pension Scheme (QROPS) that is recognised by HM Revenue & Customs (HMRC).

Do I qualify?

Whilst cases should be examined on an individual basis there are a number of basic conditions that must be fulfilled in order to transfer to a QROPS.

To gain the maximum benefits from a QROPS arrangement, the member must become non-UK tax resident and remain so for at least 5 full complete and consecutive UK tax years.

The existing UK pension scheme can be in drawdown (i.e. benefit being paid from the fund directly – an approach now referred to as "Capped Drawdown") before transferring to a QROPS. However, there are restrictions and if the permitted Pension Commencement Lump Sum (PCLS) has been taken, no further PCLS is allowed.

UK rules impose a statutory Lifetime Allowance ('LTA') relating to the amount payable from UK registered pension schemes that will be treated as tax-privileged. Transferring benefits to a QROPS is known as a Benefit Crystallization Event ('BCE') and the value of pension rights transferred in excess of the lifetime LTA will be subject to UK tax.

What are QNUPS?

Qualifying Non UK Pension Schemes were created by the Inheritance Tax Regulations 2010, which became effective from 6th April 2010 and add to the armoury of potential retirement planning solutions available. They are open to UK residents, including those permanently residing in the UK, and overseas residents, including UK domiciled individuals. In particular, QNUPS are an attractive additional retirement savings plan where individuals have reached the permitted limit of their domestic pension contributions.

Therefore, UK resident individuals who have already used their annual and lifetime allowances, but who wish to make further provision for their retirement, might choose a QNUPS. QNUPS may also provide attractive pension planning for non-UK resident and non-UK domiciled individuals who may decide to move to the UK, or UK expats who may wish to return to the UK in the future.

Considerations

• Subject to contributions into a QNUPS being deemed appropriate to the individual’s circumstances (ie proportionate to their overall wealth), there is no limit on the amount an individual can contribute into a QNUPS for their retirement.
• A variety of assets can be held within a QNUPS, including cash, quoted securities, private company investments, residential and commercial property. Assets that have attracted tax relief must not be contributed into a QNUPS.
• The assets comprised within a QNUPS do not form part of the individual’s estate on death and therefore any remaining retirement funds can provide longer-term benefits for them.