Staff Reporter
A QNUPS (Qualifying Non-UK Pension Scheme) is an offshore unapproved pension arrangement which satisfies the definition of a pension scheme as set out in Section 150 of The UK Finance Act 2004. It is classed as an unapproved pension arrangement because contributions made into the scheme are not eligible for UK tax relief. However, these schemes are fully recognised by HMRC as defined by UK legislation.
QNUPS have become an increasingly popular investment vehicle for British expats in Spain looking to diversify their retirement savings.
A Qualifying Non-UK Pension Scheme can offer several tax benefits.
The Tax Benefits
Lump sum investments into the scheme are immediately outside of your estate for UK inheritance tax purposes whether you remain abroad or return to the UK.
If you nominate your spouse as a beneficiary, when you pass away, a Spanish succession tax liability is not triggered, provided the pension is drawn in the same tax efficient manner. When your spouse passes away, if your ultimate beneficiaries, say your children, live outside of Spain, no Spanish succession tax is due.
If you structure your pension income in the form of an annuity the effective tax rate is anywhere between 2% and 6% – dependent on the amount you draw as an income, the length of the annuity and progressive tax rates in your autonomous region.
Your investments can continue to grow within the pension structure free of Spanish capital gains tax.
It may offer asset protection against creditors and legal claims and in some cases may be exempt from claims made against you in bankruptcy.
It provides a high degree of flexibility in terms of investment options enabling you to diversify risk and potentially increase your returns.
Points to Consider:
Whilst there are no specific guidelines regarding the level of post-tax contributions you can make, these must be reasonable and commensurate with your overall wealth, earnings, age and future income requirements to avoid being captured by UK Income Tax anti-avoidance provisions.
To pay the minimal amount of tax on pension income your annuity contract must be fixed during your lifetime which means you must consider maximum income requirements at the outset. If you break your annuity contract pension income gets taxed at Spanish marginal rates.
The Spanish Tax Office is now insisting that annuities are paid out of an insurance policy. This means that pension assets must be held an insurance policy for greater tax efficiency.
It’s essential to seek professional advice and carefully consider all the pros and cons before making any decisions.
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