Posted by Tax Innovations on 16 Dec 2016

Changes to the Taxation of QNUPS

HMRC is making changes to the taxation of Qualifying Non-UK Pension Schemes (QNUPS) but, if structured correctly to provide for your future and that of your family, a Qualifying Non-UK Pension Scheme remains an attractive retirement planning opportunity.

Taxation of QNUPS to be Brought Closer to UK Pension Schemes

The draft 2017 Finance Bill has been published and contains a series of changes to the taxation of overseas pension schemes, including QNUPS. These changes are intended to bring the taxation of Qualifying Non-UK Pension Schemes closer to that of UK pension schemes.

This Finance Bill states that from April 2017:

  • The long-standing 10% deduction available for pension income from overseas pensions will be removed meaning that the full amount of pension income from a QNUPS will be taxable.
  • This is compensated for by the introduction of a tax exemption for lump sum payments from overseas pensions of up to 25% of the fund value.
  • Any lump sum in excess of 25% will be fully taxable, even if received by third parties following the death of the beneficiary.
  • Any payment of dividends to a QNUPS from a company with which the beneficiary has an employment and shareholding relationship will be taxable on the beneficiary as employment income.

It should be noted that this is still draft legislation and may change significantly on the way to becoming law, but even so these proposed changes serve to reinforce the way in which a QNUPS should be utilised.

Taxation to Remain a Highly Flexible and Tax-Efficient Investment Environment

The changes to the taxation of payments from a QNUPS do not alter the fact that a QNUPS is a highly flexible and tax-efficient investment environment. A QNUPS can invest in a wide range of assets and, if structured correctly, there should be no tax on capital growth on those investments (other than UK residential property) and a maximum of 20% tax on UK investment income.

A Qualifying Non-UK Pension Scheme is Not a Short-Term Tax Avoidance Solution

Instead, the focus of a QNUPS should be to take advantage of the flexibility of investment options and the tax efficient returns on those investments. These allow your retirement fund to grow beyond what would be possible within a more restrained UK-based structure. In addition, by ensuring that your family are also members of the QNUPS there will be no need for a taxed, lump sum payment to be made on your death allowing your family to retain control of how and when retirement benefits are taken.

Tax Innovations: The Effective Use of a Qualifying Non-UK Pension Scheme

Tax Innovations can advise on the effective use of a Qualifying Non-UK Pension Scheme to provide for your future and advise on how the proposed tax changes will impact on existing structures.  

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