This article explains what Qualifying Non UK Pension Schemes are and the current UK inheritance tax position for these schemes.
Much has been written in the press on this subject and there appears to be some confusion regarding exactly what is a Qualifying Non UK Pension Scheme (QNUPS).
If we consider the background to the introduction of QNUPS, we need to look to the arrival of the so called simplification of the UK pension regime and the eventual lead up to A Day – 6 April 2006.
One omission from this original legislation was the UK inheritance tax (IHT) exemption that applied prior to A Day for certain overseas pension schemes.
Basically, prior to vesting a UK pension fund on the death of the member would result in the fund being available to the beneficiaries free of IHT under section 151 of the Inheritance Taxes Act 1984 (IHTA84).
If that fund had been transferred to a Qualifying Recognised Overseas Pension Scheme (QROPS) from 6 April 2006, under the rules introduced in Finance Act 2004, the pension fund held within the QROPS would potentially be subject to IHT on death as QROPS were not included as an exemption in the IHTA84. Furthermore, periodic charges and exit charges may also apply to the QROPS funds under the relevant property rules.
HM Revenue and Customs (HMRC) subsequently confirmed that it was never their intention for this issue to arise and therefore QROPS would fall within the category of overseas pension schemes which would be regarded as exempt from IHT in the same way that UK pension funds enjoyed exemption. The pre budget report of 2007 confirmed this intention and it was included in the subsequent Finance Act of 2008.
HMRC issued The Inheritance Tax (Qualifying Non-UK Pension Schemes) Regulations 2010 [SI 2010/0051] which defined exactly what type of non UK pension scheme would be exempt from IHT and it was here that the acronym of QNUPS was introduced.
In order for a non UK pension scheme to qualify for the IHT exemption it had to fit the definition of a Qualifying Non UK Pension Scheme (QNUPS). So, QNUPS is not a product or even a type of pension trust but simply a definition under which an overseas pension scheme must fall in order to gain the IHT exemption. It came into force from 15th February 2010 with effect retrospectively from the 6th April 2006.
Prior to the changes from April 2017 to the requirements for an overseas pension scheme to qualify as a QROPS, a QROPS would meet the QNUPS requirements and so be exempt from IHT under section 151 of the Inheritance Tax Act 1984. The changes mean that in limited circumstances a QROPS may not be a QNUPS and so the exemption will not apply.