QNUPS can shelter wealthy homeowners from tax

QNUPS offshore pensions can help wealthy property owners avoid Chancellor George Osborne’s crack down on tax management, according to lawyers.

Qualifying Non-UK Pensions (QNUPS) can shelter expensive residential property from new laws aimed at the wealthiest homeowners.

In the last Budget, Osborne decided to raise stamp duty on home purchases of £2 million or more to 7% from 5%.

A 15% mansion tax is also due on homes valued at more than £2 million that were purchased by companies.

Offshore companies selling residential property will also be subject to capital gains tax (CGT) on an improved home value.

Exempt from IHT and mansion tax

QNUPS can help homeowners  manage these taxes because of the underlying way the pension is set up.

As HM Revenue & Customs has released more information about the new taxes, the position of a QNUPS has become clearer.

A QNUPS is a UK pension set up to plug a gap in inheritance tax laws. Unlike many offshore pensions, a UK resident can hold a QNUPS and no reporting restrictions are vimposed on the scheme, unlike Qualifying Recognised Overseas Pensions (QROPS).

However, if the QNUPS member is still resident in the UK, the transfer of property could trigger a lifetime inheritance tax (IHT) charge.

The workings are simple – a QNUPS is set up and run by trustees – and as a trust a QNUPS is specifically exempt from IHT and mansion tax.

The trustees can also claim principal private residence relief against CGT with the trust beneficiary.

Window of opportunity closing

HMRC will try to make a 10-year-charge against the trustees for IHT to try and grab some of the lost tax, but this charge is generally 6% against equity, so if the property is mortgaged, the value of this is minimised.

Howard Bilton, chairman of Guernsey-based Sovereign Group, explained: “Both charges can be avoided by transferring the property from the company to individual owners but, particularly for older buyers or those in poor health, that will not be attractive as it will mean the property is subject to IHT at 40% of the total value when the owner dies.

“I would strongly advise anyone who owns UK property worth £2 million, or which may become worth £2 million in the future, to take action now. There is a window of opportunity to rebase the capital cost as long as this is done before April next year.”