The dust may be settling on the British tax man’s crackdown on suspected QROPS tax abuse – but now providers fear HM Revenue & Customs may turn their sights on another offshore pension – QNUPS.
Some offshore financial centres are rumoured to be shifting to QNUPS because they can no longer sell QROPS, but the same tax abuse concerns persist.
Nearly 400 QROPS schemes were closed to new business in Guernsey, the Isle of Man and New Zealand in April. This was followed by closing all Cyprus QROPS a few weeks later.
QROPS – a qualifying recognised overseas pension scheme – is for British expats and international workers with UK pension rights living outside the UK.
Exploiting the rules
UK pensions can be transferred in to the scheme, while QROPS rules are more flexible for investors and offer some tax advantages.
QROPS providers must report any cash or benefit withdrawals to HMRC for up to 10 years after the pension starts.
QNUPS are ‘qualifying non-UK pensions’ and operate under different and much laxer rules.
They are open to UK residents and non-residents, but do not accept transfers from UK pensions and providers are under no obligation to report withdrawals to HMRC.
Some advisers are concerned HMRC may target QNUPS as retirement savers are suspected of pushing the tax boundaries with the schemes to exploit the non-reporting rules and the ability for holding a wider range of assets within the scheme.
QNUPS also have inheritance tax advantages, which is why some retirement savers are switching assets like their homes and other properties in to them.
While UK estates pay a 55% tax charge of assets remaining in a pension on the member’s death, no IHT is due on assets left in a QNUPS.
Borrowing from a QNUPS
HMRC might take a dim view of buying in to a QNUPS for IHT management, as other schemes are not allowed to include residential property and pensions are designed to pay an income in retirement, not protect assets from tax.
Bethell Codrington, of QROPS provider Panthera, said: “QNUPS are being promoted because members can put a holiday home in or borrow from it, but a pension is there to provide retirement income and you don’t get income from those things.”
“There is a nervousness that HMRC will amend QNUPS rules if they believe they are missold to bring it in to line with QROPS.”