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QROPS vs QNUPS

Last reviewed/updated 9 June 2022 at 14:36

The rules for a QROPS were established in the Finance Act 2004 Statutory Instrument 2006/206, the rules detailed the exact conditions required to turn an overseas pension scheme in to a QROPS. However, the Finance Act 2004 did not cover laws for Inheritance Tax, and the way it stood, QROPS transfers still became liable for UK Inheritance Tax. This issue was rectified in the Inheritance Tax Regulations 2010 with the introduction of QNUPS.

The new rules, which came into effect in February 2010, mean that UK residents are allowed to transfer their UK pension into a QNUPS, and subsequently have the funds free of Inheritance Tax at death.

It’s also worth noting that these rules don’t exclusively apply to QNUPS overseas transfers, if you have another type of overseas pension and it meets the requirements laid out by HMRC, then this could be seen as a QNUPS and be free from UK Inheritance Tax as well.

To have an overseas pension plan classed as QNUPS some important requirements must be met. The statutory instrument 2010/501 has a clear layout of these requirements; however you will find that the rules are the same as for the QROPS, with a few small differences:

  • A QROPS is always a QNUPS, a QNUPS will not always be a QROPS.
  • A QNUPS does not have to be registered with HMRC, which means no reports will have to be made regarding payments or benefits given to the holder.
  • Funds in a QNUPS will not be subjected to Inheritance Tax.
  • Since the QNUPS is based overseas, the amount of contributions you made into the scheme would be regulated by the laws of the jurisdiction in which the QNUPS is held. However, most offshore jurisdictions are not as restrictive as the UK when it comes to making contributions and your annual allowance.
  • If you have been an overseas resident for over five UK tax years, then you are free to transfer any existing QROPS funds into a QNUPS, which would be of use to individuals who may have to return to the UK due to unforeseen circumstances. For if such an individual was to return to the UK and still have funds in a QROPS, HMRC would require reports, and any benefits that were due would be restricted by UK laws, or an unauthorised payment charge could be levied.
  • QNUPS transfers after five years of non-residency also allow the holder to escape UK taxes on their death benefits should they return to the UK.