International firms facing problems with pension and benefits packages for expats are looking at qualifying non-UK pensions (QNUPS) to fill the gap – but one provider warns that assets held in the scheme may lead to problems with the taxman.
QNUPS are relatively new offshore pension products introduced in 2010 to plug a gap in inheritance tax laws.
In contrast to their close cousins, qualifying recognised overseas pensions (QROPS), a QNUPS is open to resident and non-resident taxpayers – so are an option for expats and UK taxpayers working abroad.
Although contributions do not pick up tax relief like a self-invested personal pension (SiPP) or other UK pension, the fund grows free of tax.
Investments a QNUPS may hold
Pensions experts dispute what type of assets can be held by a QNUPS – and the lack of any test cases or clarification from HM Revenue & Customs is causing concern for some providers and advisers.
On the one hand, independent financial advisers are urging clients to pile in assets that not allowed in other UK pensions, like residential buy to let portfolios, art, fine wines and classic cars.
QNUPS do not allow transfers in from UK pension funds, but are often top-up funds for a SiPP or other onshore scheme subject to contribution limits, as no caps apply to a QNUPS.
However, one provider has warned HMRC may turn their attention to assets held in QNUPS after a crackdown on QROPS tax abuse.
Bethell Codrington, director of QROPS provider Panthera, writing in trade magazine New Model Adviser, said: “We are now seeing providers promoting QNUPS on the basis you can put your holiday home in it or borrow from it.
“HMRC could take a stance against the schemes if they held residential property, and would examine the tax treatment of any rental income.
“A pension fund is there to provide retirement income and you don’t get income from those things. If your home is rented out it might give you a certain percentage income return but what is the tax treatment of rental income in the place the QNUPS is based or that of the person taking the income? HMRC may well say; that is not a pension fund because it will not pay a pension.”
Another issue about holding residential property in a QNUPS is what is the tax treatment of personal use of an asset held in a pension scheme when HMRC is very clear that this is taboo for taxpayers.
Lack of HMRC guidance on QNUPS
QNUPS are offered by many offshore financial centres – and Guernsey is suspected of turning to QNUPS now that a recent HMRC crackdown on offshore pensions has closed more than 300 QROPS to transfers in on the Channel Island.
The problem for many expats who would like to set up a QNUPS is the lack of firm guidance from HMRC.
HMRC is very much viewed as trying to trap taxpayers after the event and then fining them for wrongdoing rather than offering clear and concise information about what assets are allowed in a QNUPS.