Many retired British expatriates in Spain are now familiar with QROPS (Qualifying Recognised Overseas Pension Schemes) which were introduced in 2006 and used by many retirees to gain
Many retired British expatriates in Spain are now familiar with QROPS (Qualifying Recognised Overseas Pension Schemes) which were introduced in 2006 and used by many retirees to gain more flexibility for their private pension funds. QNUPS (Qualifying Non-UK Pension Schemes) are a newer ?cousin?, and an attractive retirement wealth management tool for British expatriates in Spain as they provide specific tax advantages for Spanish residents.
Most QNUPS are established as a personal pension arrangement and the principal reason for having one is to provide retirement benefits in the form of income. Like a QROPS, a QNUPS is a pension trust and it pays out benefits in a similar manner, but while only existing pension schemes can be transferred into a QROPS you can transfer non-pension assets ? so any investable wealth – into a QNUPS. You therefore have more opportunity to increase your retirement fund and potentially your retirement income.
Tax benefits for Spanish residents
While QNUPS can be established by both UK residents and British expatriates anywhere in the world, they are particularly tax efficient for Spanish tax residents. The Spanish benefits of QNUPS are:
? There is no Spanish taxation on transfer into a QNUPS.
? All funds within your QNUPS grow free from any Spanish income tax.
? When it comes to tax on the income, withdrawals are usually in the form of an annuity from the fund and in this case very favourable Spanish tax provisions may apply.
? You can withdraw 25% of your QNUPS as a lump sum. While pension lump sums are taxable in Spain, your liability is not calculated on the whole sum, but rather on the difference between the capital received and the contributions you made.
? The underlying assets within your QNUPS are outside your estate and so are not liable for any Spanish succession tax. This could make quite a difference to the amount you pass on to your heirs.
? A QNUPS would avoid Spanish wealth tax during accumulation, i.e. where no withdrawals are being made from the fund.
Wealth management benefits of QNUPS
Besides the tax advantages in Spain QNUPS provide a number of general benefits. Depending on your circumstances these can include:
? More flexibility than UK pension schemes. The range of suitable investments is vastly superior to most schemes.
? Any currency can be invested, so as a Spanish resident you can set your QNUPS up in Euros and receive the income in Euros, thus avoiding both exchange rate risk and costs.
? Once you are over age 55 they can provide you with a provision for an income for life, and you also have the 25% lump sum option.
? There is no maximum contribution level so you can transfer much of your savings and investments into your QNUPS, though you should discuss this with your wealth manager first.
? Contributions can be from any source (though you cannot transfer UK registered pension schemes).
? You do not need to have any employment earnings in the year in which you can make a contribution. You can contribute if you are already retired, though since the aim of a QNUPS is to provide an income for life, the older you are (eg, above 75), the less suitable it is.
? There is no requirement to buy an annuity from an insurance company, so you would keep the underlying funds invested.
? Income and gains roll up tax free within a QNUPS, wherever you live (income is taxable, depending on country of residence).
? QNUPS set up to provide pension provision are exempt from UK inheritance tax (IHT). This is provided the fund is not paid to your estate on death – it can go to your chosen beneficiaries but not to the executors. This IHT exemption applies even if you are a UK domicile; indeed it also applies to UK residents. HMRC confirmed in a 2011 statutory instrument that QNUPS are exempt from IHT (as are QROPS).
? There is no need to prove to the UK authorities that you are resident in Spain (or elsewhere) as UK PAYE does not apply. There is no scheme reporting to HM Revenue & Customs (HMRC).
? All the tax benefits start immediately after setting up your QNUPS.
? QNUPS avoid local succession laws.
? You can have both a QNUPS and a QROPS.
In the right circumstances a QNUPS offers a highly flexible and tax efficient wealth management structure for British expatiates living in Spain. It can also continue to be useful if you move back to the UK or to another country, though the level of local tax benefits would depend on the country in question (it would normally remain exempt from UK IHT though).
Speak to an established international wealth and tax management firm like Blevins Franks, which has full knowledge of the taxation rules in both Spain and UK, to find out more about QNUPS and whether it would be suitable for your aims and circumstances.
Statements relating to taxation are based upon current taxation laws and practices which may be subject to change.