For anyone who is working overseas or looking to retire abroad and wanting to invest their pension in a tax effective way may be forgiven for the confusion over Qualifying Recognised Overseas Pension Scheme (QROPS) and a Qualifying Non-UK Pension Scheme (QNUPS).
That’s because, strictly speaking, all QROPS are QNUPS but not all QNUPS are QROPS.
Read the basics about QROPS here. The differences between them are subtle and this is a quick guide to understanding both pension schemes.
What is a QNUPS?
- QNUPS are a set of rules rather than a financial service or product.
- An pension scheme meeting QNUPS rules is exempt from UK inheritance tax – unless the pension is a tax-avoidance ruse
- Unauthorised payments made under QNUPS which are not QROPS are not subject to HMRC penalty charges
- QNUPS are not subject to the same reporting requirements to HMRC as QROPS
- QNUPS are an effective way to invest money tax-free and keep the pension outside UK inheritance tax rules
- The biggest difference between the two schemes is a QNUPS does not need administration in a financial centre with a double taxation agreement between the UK and the country where the investor lives.
What is a QROPS?
- QROPS are pensions established outside the UK and recognised by HMRC so that they can be regulated
- QROPS also enjoy exemption from UK inheritance tax, but any unauthorised payments which fall foul of HMRC’s rules will face hefty penalty charges
- Transferring a pension fund into a QROPS will not attract UK tax since the scheme is designed to allow those leaving the country take their tax-relieved pension savings with them
- The rules on QROPS dictate that someone using the scheme should not gain a tax or financial advantage over someone who keeps their pension in the UK
- HMRC publishes a list of recognised QROPS online – but figuring on the list does not mean that the scheme has official approval
- HMRC can remove QROPS from the list and close jurisdictions if they are perceived to be not following the rules
Offshore pension transfers
Anyone considering a QNUPS or QROPS transfer should find a financial adviser who understands the differences between the schemes. Few independent financial advisers have the qualifications or experience to handle offshore pension transfers.
One of the issues for QROPS and QNUPS providers is that the guidance from HMRC is not as comprehensive as for pensions registered in the UK.
Expats particularly need to be aware of the rules of inheritance when switching their pensions outside the UK and the way tax laws where they live and in the UK interact.