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Avoiding IHT with QNUPS

 

A friend told you that he intends to invest a chunk of his assets in a qualifying non-resident pension scheme (QNUPS) because the funds in them are beyond the Taxman's reach. Is he right?

Pensions and IHT

We recently reported on the changes to the tax rules which determine how much of your pension fund will end up in the Taxman's hands when you die. Broadly, and in most cases, theres no Inheritence Tax (IHT) but a special 55% tax is payable instead. However, a friend has told you that you can avoid both of these by shifting your assets into a QNUPS.

What is a QNUPS?

QNUPS were created 18 months ago following a change in the rules applying to UK residents who invest in approved overseas pension funds. The change was to remove an anomaly which penalised individuals, essentially those temporarily working in the UK, who invested in overseas schemes. But in making the change the Taxman created an unexpected advantage for all UK taxpayers.

A pension fund but not as you know it

While a QNUPS is primarily a pension investment targeted at those who intend to leave the UK eventually, there's no restriction on who can invest. So anyone can use them.

Trap - Dont this of a QNUPS as an alternative to registered (approved) pension schemes, Unlike these there's no income tax relief for making a contribution. Nonetheless, a QNUPS is advertised as being UK tax-free implying there's some special exemption; there isn't. they are UK tax-free because they're usually set up and managed in zero or low tax regimes like Jersey or Malta.

What's the advantage?

The advantage of a QNUPS for a UK taxpayer is that the assets held in it aren't subject to IHT or the special 55% tax. Normally, for someone who's lived in the UK long-term, transferring assets overseas wouldn't stop them from being chargeable to IHT.

Tip

Unlike the UK pension funds, there's virtually no restriction on the type of assets you can transfer; for example, residential property, jewellery, fine wine collections can all be put into a QNUPS - and there is no restriction to the value of assets you can transfer.

Trap 1

Where you transfer an asset which is worth more now than when you aquired it, the difference will count as a capital gain on which tax will be due unless this is covered by your annual exemption (£10,600 for 2011/12) or other reliefs.

Trap 2

The normal IHT rule which says that you won't escape IHT where you give away assets but still have use of them applies to transfers into a QNUPS. For example, a holiday home would remain part of your estate if you transferred it into a QNUPS but still recieved income from it.

Where to get one?

Apart from the many companies you can find on the Injternet by searching for QNUPS, an Independant Financial Advisor might also be able to locate a suitable one and give you some extra advice into the bargain.

Summary

Where you transfer assets to a QNUPS you won't recieve income tax relief as you would in the case of a normal UK scheme. But the value of the assets will escape IHT and the special pensions death tax charge. You can transfer most types of asset into these schemes.

If you need any more information or advice about inheritance tax, please don't hesitate to get in touch on 0191 386 4786

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