Posts Tagged ‘Qnups’
Reduce Spanish and UK Inheritance Tax with A QNUPS
British expatriates living in Spain want to feel confident that their wealth will last them for the rest of their retirement and keep them in a comfortable lifestyle. Paying less tax is one way to protect your assets and legitimate tax planning methods can help with this. The latest arrangement available to British expatriates is QNUPS (Qualifying Non-UK Pension Schemes) which can reduce taxation in Spain –as well as UK inheritance tax (IHT).
Spanish tax savings which can be made with a QNUPS are:
- QNUPS can avoid succession tax in Spain as well as succession law.
- There is no Spanish tax on the transfer into a QNUPS.
- Funds within the scheme will grow free of Spanish income tax.
- If you make a withdrawal in the form of an annuity from the fund itself (as is usually the case), very favourable Spanish tax provisions may apply.
- There is no need to buy an annuity from an insurance company.
- You can withdraw up to 25% as a lump sum from a QNUPS. If a lump sum is taken Spanish tax is due, but is calculated only on the difference between the capital received and the contributions you made. The tax rate is 19% (on the first €6,000 of total savings income, including that from other sources) and 21% on the excess.
- The balance of your investment can pass onto your heirs on your death.
- A QNUPS can avoid wealth tax if a rate is reintroduced in the future.
No UK IHT with a QNUPS
If you are a British expatriate, you may be liable to UK IHT on your worldwide assets, even if you are Spanish tax resident. This is because liability to IHT is based on domicile and not residency.
Shaking off your domicile is not easy to do and usually takes at least three years and involves pruning your ties with the UK to the bare minimum. For example, you would need to sell your UK property or at least not have it available for use; close surplus bank accounts, credit and debit cards and other investments; sell your vehicles and cut down social and business connections in the UK. You need to be able to provide evidence that you do not intend to return to the UK, and establishing a permanent home in Spain and making a Spanish Will will help. Even if you do lose your UK domicile status, you would regain it as soon as you move back to the UK to live.
Many Britons who relocate to Spain do so without a thought of moving back to the UK. But the fact is that as the years go by many do for a variety of reasons, such as on the death of a spouse or partner or to be closer to grandchildren as they grow up. Returning to the UK means returning to a UK liability to IHT, currently at 40% above the nil-rate threshold of £325,000 per person or £650,000 for spouses and civil partners.
Investing in a QNUPS takes away the worry over whether or not you are still UK domiciled and liable to IHT, or whether you may later return to the UK. Assets in a QNUPS are immediately exempt for IHT – even if you are UK domiciled.
Other advantages of a QNUPS
- Investable wealth can be placed in a QNUPS. You cannot invest a UK pension plan directly into a QNUPS, although it is possible after you have been non-UK resident for five complete, consecutive UK tax years, as long as you go via the QROPS route first.
- There is no maximum age at which you can invest in a QNUPS.
- There is no maximum contribution.
- You do not need to have any earned income from an employment.
- Income and a lump sum can be taken from age 55, or can be deferred until the age of 75 (although if you take income earlier, the lump sum needs to be taken then).
- Assets can be invested and benefits taken in any currency of your choice, giving you the opportunity to remove currency risk.
- Income which is taken is drawn down from the fund, leaving your scheme assets invested and rolling-up free from tax.
A QNUPS provides an opportunity for flexible investing and choice. It doesn’t matter how old you are or how long you have been retired, investing in a QNUPS will give immediate tax benefits, especially for Spanish succession tax and UK IHT. Within QNUPS the funds will remain fully invested and will be subject to investment risk, in line with your investment objectives.
Blevins Franks is an established international wealth and tax management firm with full knowledge of the rules of taxation in both Spain and the UK. Contact an adviser such as Blevins Franks to learn how QNUPS can help you.
Note that the tax treatment(s) detailed above are current at the time of writing; these are based on our understanding of current UK and Spanish legislation and taxation practice, and may change in the future.
By David Franks, Chief Executive, Blevins Franks
Testing Times For The Euro
Over the last three years, the currency story for British expatriates has all been about the Pound Sterling and its fall from grace – it lost around a third of its value against the Euro and a fifth against the US Dollar.
This year the focus is shifting to the Euro. Uncertainty over Greece’s financial viability, not to mention concerns over other European economies, is plaguing the single currency. Some analysts have even queried whether it can survive.
The problems of sharing a single currency across countries with divergent political priorities and economies has been brought sharply into the spotlight, as have the difficulties of getting 16 Eurozone States to agree on a solution.
At the end of March Eurozone leaders reached agreement on a rescue fund for Greece, if needed. The Euro briefly strengthened as a result, but the sketchy details of the fund could not sustain the gains.
Eurozone finance ministers then took further steps to support Greece and prop up the Euro, announcing a €30 billion loans package on 11th April. The IMF is also expected to offer financial aid if needed.
At the time, Jean-Claude Juncker, head of the Eurozone group of finance ministers, said: “This is the step of clarification that markets are waiting for – it shows there is money behind this.”
The loans are available should Greece need them. Payments would only be made if all 16 Eurozone countries agree – and countries could potentially veto it.
The Euro hit a one-month high on the announcement, but it has dropped again since. Following the news that Greece’s budget deficit is worse than expected, and of another credit rating downgrade for the country, the Euro continued to slide towards a one-year low against the US Dollar.
The outlook is looking very challenging for the Euro. With 16 different nations involved, there are both political and legal restraints to fixing the single currency. Economists warn that the Eurozone still looks divided and little has been done to address the longer-term underlying problems it is facing.
Most British expatriates holding Sterling assets would be pleased to see a stronger Sterling and/or a weaker Euro. The lowest currency risk option for an individual is to match assets (bank deposits, investments etc) and liabilities (day-to-day expenditure) in the same currency. However, many British expatriates tend to retain a significant amount of assets in Sterling, including private pension arrangements, making them subject to the vagaries of currency exchange rate movements.
It is impossible to predict future currency movements with any certainty. However, in my opinion there is a strong possibility that the Euro could weaken further in the short to medium term while the Eurozone problems exist. I do not subscribe to the worst case scenario of the Euro failing, or of a Member State reverting to their original currency.
As a UBS Bank article reporting on research by its economists says, “Perhaps it would have been better for a number of countries if they had never joined the Euro. Nevertheless, the European Monetary Union is certainly not about to break up; at this stage, the costs would far exceed the benefits.”
Uncertainty about the fate of the Euro may be around for a while. What can you do to protect your assets? Swapping all your Euros to Sterling or another currency is not the answer. For a start you should have enough assets in Euros to meet your spending liabilities for a few years, and also there is no guarantee that Sterling or the US Dollar won’t fall more than the Euro. What you need to aim for, as much as possible, is diversification and flexibility.
When it comes to your savings and investments, you could diversify them over two or three currencies. Much depends on your individual circumstances, including whether you are likely to live in the Eurozone for the rest of your life, if there is any possibility that you will return to the UK and if you expect to leave an inheritance to heirs in the UK.
If you invest within an insurance bond choose one which allows currency flexibility, so you can switch currencies if the need arises. If you are waiting to invest, you could invest now in Sterling and if or when the exchange rate improves, switch some to Euros then.
The same goes for your UK private pension funds. If you were to, for example, transfer them into a QROPS (Qualifying Recognised Overseas Pension Scheme), this allows you to choose the currency for the underlying funds and the income. You can usually set it up in Sterling and switch to Euros later, or, if it is in Euros, have the option to convert to Sterling at a later date if your circumstances (or the fate of the Euro) change. However you should keep in mind the fact that, exchange rate movements may affect the value of your funds.
There are testing times ahead for the Euro. What happens to it is out of your control, but you can usually control your choice of savings, investment and pension structures so as to give yourself currency diversification and flexibility. Ask an experienced international wealth manager like Blevins Franks for advice.
By Bill Blevins, Managing Director, Blevins Franks
Opportunities For British New Tax Planning Expatriates – QNUPS
On the 15th February 2010, a new UK HM Revenue & Customs (HMRC) statutory instrument came into force, the implications of which create significant opportunities for British expatriates to save local taxes in Spain as well as UK inheritance tax (IHT).
The UK legislation has now created a new type of trust known as Qualifying Non-UK Pension Schemes (QNUPS) – which should not be confused with Qualifying Recognised Overseas Pension Schemes (QROPS).
As pension schemes are one of the key ways that most governments incentivise their citizens to save for their retirement, the tax rules are generally more favourable than other investment structures.
The problem for most retired expatriates is that they believe that their days of being able to put money into pension schemes are behind them; however QNUPS may significantly change many retired expatriates’ view on this.
Firstly, there is no maximum age at which you can invest in a QNUPS.
Secondly, you do not need to have any earned income from an employment in order to make a contribution.
Thirdly, there is no maximum contribution that can be made into a QNUPS.
The rules are sufficiently flexible to allow someone who is 85 years of age and has been retired for 25 years to put large investments into a QNUPS and immediately create significant tax advantages for themselves.
So what benefits do QNUPS give to retired British expatriates?
The main thing to remember is that a QNUPS is a pension scheme trust and as such you are entitled to take a cash lump sum and income during your lifetime, with the remainder of your fund being able to be passed to your spouse or heirs on your death free from all taxes.
The following advantages are available to you through a QNUPS:
- As a pension scheme, a QNUPS is very tax efficient in most countries as it can avoid both local wealth taxes during your lifetime and succession taxes on your death.
- A QNUPS also avoids local succession law, so that you are free to choose exactly who inherits your money and in what shares.
- Income can be taken from age 55 (after 6th April 2010) or it can be deferred as it does not need to be taken until age 75. In certain countries it can be paid in a manner where a significant portion can be paid to you tax free.
- When income is taken it is drawn down from the fund, thus leaving your scheme assets invested. Otherwise the assets grow free from tax.
- On death the value of the QNUPS will be exempt from UK inheritance tax and local succession taxes.
- A QNUPS offers considerable investment flexibility and choice. Furthermore your assets can be invested and any benefits taken in a currency of your choice, giving you the opportunity to remove currency risk.
- The trustees of a QNUPS have no reporting obligations to HMRC unless the scheme also holds any assets transferred from an authorised UK pension scheme. You can have both a QROPS and a QNUPS.
In essence QNUPS allow retired British expatriates to put their investable wealth into a pension structure and significantly improve their personal tax position as a result.
Solving the UK inheritance tax conundrum with a QNUPS
The only way to avoid UK inheritance tax is to become a non-UK domicile, which is NOT the same thing as becoming a non-UK resident. It can be very difficult to shrug off your UK domicile even though you may have lived overseas for many years and so your estate on death can be liable for tax of 40% (or probably more if a Labour Government is re-elected).
QNUPS immediately solves this problem even if you were to return to live in the UK. In fact, it avoids the tax even if you never left the UK to live overseas in the first place. You do not have to wait seven years to avoid the tax (which is the case under the PET or potentially exempt gift rules), and you do not have to give the assets away either. You and your spouse or partner can continue to benefit from the assets. It couldn’t be better!
By David Franks, Chief Executive, Blevins Franks