Many of you will know of Richard Burton CBE. He was a famous film star, husband to Liz Taylor, and a patriotic Welshman. However, he didn’t like paying taxes on his income while he lived in the UK. So what do you do if you’re a patriotic Welshman who doesn’t like paying tax? You move to Switzerland, of course!
Richard spent the last 27 years of his life living in Switzerland, where he died and was buried. At the time of his death, he was worth roughly £5m. Even though he had spent 27 years abroad, Richard remained British domiciled, and upon his death, HMRC claimed £2.4m from his estate in Inheritance Tax!
I speak to many expats who think that UK Inheritance Tax won’t apply to them because they’ve been out of the country for 20 years. It’s simply not the case, though, and you can read why in my blogs elsewhere. If you’re in a similar scenario, here’s how a QNUPS might be a potential solution for you.
What is a QNUPS?
A QNUPS is a Qualifying Non-UK Pension Scheme. It’s been around for 10 years now, but enjoys little recognition.
Why a QNUPS?
- No upper limit on contributions
- Immediately outside of estate from IHT, no need to wait seven years
- Can take up to 30% as a pension commencement lump sum from
- Flexible income then available and can be deferred until 75
- A retiree in Malaysia can expect to pay no tax on benefits
- Wide range of investments can be held, including rental properties
- Tax-efficient growth of assets
- Unspent fund can be passed on to beneficiaries upon death
How does a QNUPS work?
Technically a QNUPS isn’t actually a pension but falls under UK Inheritance Tax (IHT) regulation. However, it works like a pension and is outside of one’s estate immediately for UK IHT. It must be shown prior to being established that it is being set up to provide a retirement income.
Who is a QNUPS for?
An ideal candidate for a QNUPS is a Brit with an estate that is subject to UK IHT, but little of their estate in pension vehicles. They want to retain control and access to their assets, but want to have assurance that their loved ones will receive the funds upon their death, rather than HMRC claiming them in taxes.
Where is a QNUPS based?
Typically it would be based somewhere like Malta, Guernsey, or the Isle of Man. Guernsey is favourable as benefits can be paid out gross of tax, and residents in Malaysia pay no tax on foreign earned income which means you could receive a retirement income without tax. There would also be no Capital Gains Tax on any investments held within the QNUPS structure, so it’s a great way of growing and protecting your capital.
A quick example
Jane, who is 55, has been working outside of the UK for more than 20 years. She plans to retire and split her time between the UK and where she currently lives with her Japanese husband in Malaysia, in between enjoying retirement by travelling the world. She’s been out of the UK for 20 years, but is still UK domiciled.
She currently has no formal pension arrangements in place at all, although she does have substantial savings that have been built up over the years. She plans on retiring in five years’ time. Jane and her husband believe that a retirement income of £36,000 per year would suffice in order to maintain their standard of living. On speaking to their adviser, they agree a suitable investment profile and future expectations. Based on these expectations and assumptions, they ask an actuarial team to calculate the contribution needed to aim to meet this goal.
In line with the agreed assumptions for factors such as inflation, an actuary calculates this amount to be £1,120,000, and Jane contributes this amount into a QNUPS by transferring existing investments and cash into it. Jane and her adviser agree to meet each year to monitor the investment to make sure it is on track and make adjustments as required.
Jane has removed £1,120,000 from her estate which saves £448,000 in potential inheritance tax on day one of establishing the QNUPS. She keeps control of the assets and can pass the full amount to her husband if she were to pre-decease him.
Want to know more?
I’m always happy to have a conversation with anyone concerned (or not, but maybe you should be) about IHT and potential solutions, so please feel free to give me a call or email.
As with most areas of personal finance and financial planning, rules and regulations are constantly changing and it’s important that you stay on top of them, or have someone who’s staying on top of them for you.
Don’t do a Richard Burton and assume everything will be fine. You’re not the one that will pay, your beneficiaries will!
ABOUT THE AUTHOR
Jamie is a Chartered Financial Planner and strives to raise the standards of international financial planning in Malaysia and Asia.
You may direct any inquiries to [email protected] or call +6014.734 6689.
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