QNUPS marketing and sales activities are beginning to increase following the joint effect of lowering the UK contribution limits to £50,000 per annum and the lowering of the Lifetime Allowance to £1.5m
This article aims to assist the UK & International Intermediary market, through whom, we deal exclusively. TMF Int Pensions does not transact business with individual clients directly.
Earlier this year, as we all know, HMRC swiftly implemented major amendments to the QROPS legislation as they were concerned that not everybody was operating in line with their intention. i.e. some schemes were “providing tax advantages that were not intended to be available under the QROPS rules.”
HMRC issued Statutory Instrument 884/2012 and subsequently an ‘Explanatory Memorandum’ No: 1221/2012 which can be viewed at http://www.legislation.gov.uk/uksi/2012/1221/pdfs/uksiem_20121221_en.pdf
HMRC have not as yet focused their attention on QNUPS as the marketing of such products is still in its infancy. However, as the QROPS market has become more developed, regulated and tax compliant, and loopholes closed down, some Intermediaries are now turning to QNUPS as a marketing opportunity.
The author, however, urges those involved in advising clients to be cautious in choice of jurisdiction, and as to the benefits that QNUPS may offer.
Much has been written about the tax benefits of QNUPS, and a lot of it is, to put it mildly, ambitious. A QNUPS is a pension scheme, and it must be demonstrated that it has been set up with pension provision in mind. If not, then it would suggest to HMRC that avoidance of taxation was the purpose. Income and gains may then be subject to anti-avoidance measures under Section 261 Income Tax (Trading & Other Income) Act 2005 (“ITTOIA”), section 720 Income Taxes Act 2007 (“ITA”) and Sections 86 & 87 Taxes of Chargeable Gains Act 1992 (“TCGA”) to name but a few, not forgetting the new General Anti-Avoidance Regulations (GAAR).
Setting up a QNUPS with anything other than pension provision in mind, ie: the avoidance of Inheritance tax will almost certainly not work, in the author’s opinion.
With HMRC’s requirement that, Pension funds do not offer any tax advantages that are not intended, it would not be beyond the realms of possibility that HMRC will tighten up the existing regulations governing QNUPS. The easiest way of doing this is to bring the QNUPS legislation in line with SI 884/2012 & SI1221/2012, and/or insisting that they comply with the Recognised Overseas Pension Schemes regulations RPSM13104070 http://www.hmrc.gov.uk/manuals/rpsmmanual/RPSM13104070.htm. Special attention needs to be drawn to the Tax Relief test which some jurisdictions failed to comply with when HMRC changed the QROPS legislation.
What may well drive them to this, will be mis-selling of the benefits offered by QNUPS and the availability of loans and residential property etc. This together with un-substantiated contributions will attract HMRC’s attention and probable challenge.
Whilst a wide variety of asset class and unlimited contributions may be acceptable in some jurisdictions, HMRC have put down their ‘marker’, and have already demonstrated their aversion to such behaviour in the domestic market. It is the author’s opinion that these types of activities should be avoided at all costs.
What advisors and their clients need to remember, when looking at a jurisdiction for QNUPS for those clients that fit the criteria, is, will that contract be valid on the death of a client?
Unlike QROPS where HMRC have allowed schemes in jurisdictions that no longer comply with the updated regulations to be grand-fathered with no ‘un-authorised payment charge’ on the original transfer, QNUPS will in most cases be judged on their merits upon death of the member. If the contract is not compliant at time of death, and it has left itself open to challenge through the above, HMRC will almost certainly not acknowledge it as being valid.
In the opinion of the author, a jurisdiction such as Malta, which complies with the ROPS legislation and new QROPS legislation SI884 & SI1221/2012, gives additional robustness to the structure. Just relying upon the literal interpretation of SI51/2010 is a risk not worth taking.
It is always worth remembering, that it is HMRC in UK that will determine whether they accept the validity of an International Pensions Contract, not what an overseas jurisdiction may or may not allow.
TMF International Pensions is launching an interactive series of Intermediary workshops to further discuss the technical issues and explore further the sales opportunities and ideas around QNUPS and QROPS. Please let us know if you would be interested in joining one of these groups.
Some important background :-
The UK HMRC issued Statutory Instrument 51/2010, which laid out regulations governing the Inheritance Tax Treatment of Qualifying Non-UK Pension Schemes under powers conferred by Section 271A of the Inheritance tax Act. 1984(a).
The requirements for qualifying non-UK Pensions are detailed in paragraph 4, the details for Recognition for Tax Purposes in paragraph 5 and Requirements for Schemes Recognised for Tax Purposes in paragraph 6. Full details can be viewed at the following UK government website:
Statutory Instrument 206/2006 was the instrument which heralded in the UK legislation governing QROPS, under powers conferred by Section 150(7) & (8) of the Finance Act 2004(a).
It lays out Requirements for an Overseas Pension Scheme in paragraph 2 (including primary conditions), and the prescribed countries or territories and prescribed conditions in paragraph 3. Full details again at: http://www.legislation.gov.uk/uksi/2006/206/contents/made