“By definition all Qrops are Qnups, but not all Qnups are Qrops,” says Amin Malik, director of Delta Financial Management.
Mr Malik says that, technically, a qualifying non-UK pension scheme (Qnups) is neither a product nor a pension scheme, but is rather a set of rules that “gives overseas pension schemes the ability to be exempt from UK inheritance tax unless there is evidence of deliberate tax avoidance.”
He explains that even though a qualifying recognised overseas pension scheme (Qrops) would have the same UK inheritance tax exemption because it is a Qnups by definition, it may be subject to unauthorised payment charges if it does not meet HM Revenue and Customs’ requirements.
In contrast, Qnups that are not Qrops are not subject to such charges. All further reference to Qnups in this guide therefore refers to those that are not Qrops.
Qrops are schemes established outside the UK that are ‘reconised’ in order that they can be regulated by the UK tax authority. Tranfers to a Qrops can be made free of UK tax because they enable people that are, for example, leaving the UK on a permanent basis to move their funds from a UK pension scheme to any other jurisdiction.
This does not necessarily need to be the country the person is or may be moving to, as long as it is recognised by HM Revenue and Customs and operated so that the pension holder is broadly in the same position as someone who remains in the UK.
Pension schemes that notify HMRC that they meet the conditions and agree to provide it with information are designated Qrops. The Revenue publishes a regularly amended list on their website of recognised Qrops.
Geraint Davies, managing director of Montfort International, points out that being on the list does not mean the scheme has been checked out by HMRC, merely that the scheme has agreed to operate according to HMRC’s requirements of being a Qrops.
Unlike UK registered pension schemes, individuals in a Qrops technically are not restricted by the rules of permitted investments, says Amin Malik, director of Delta Financial Management.
“However, advisers would generally caution their clients [against] investing in any investments other than those permitted as per UK registered pension schemes so as to avoid any unwarranted attention from HMRC and the potential unauthorised payment charges.”
Since ‘A-Day’ in 2006, anybody in the UK whose pension was not a lifetime annuity could opt for their scheme to be switched into a Qrops, says Mr Davies, meaning “emigration was no longer necessary”.
Provided that the Qrops are managed during the relevant reporting period along the same principles as UK registered pension schemes, Mr Malik says that Qrops members will be able to safeguard their pension funds against unauthorised payment charges, which can be as much as 55 per cent.