Are there really advantages?
The UK Inheritance Tax (IHT) advantage is not a reason to establish a QNUPS, and if set up for these purposes, HMRC may view this as tax avoidance and there could be severe tax consequences and we have seen penalties of up to 200% for failed schemes. It must be set up for genuine retirement purposes e.g. the individual could not contribute to a regulated pension.
Tax-free roll-up within the structure: this is also a benefit of UK-based pensions and other non-pension savings structures available in Portugal. A transfer to QNUPS is not required to achieve this.
Income tax benefits: all foreign retirement income will benefit under Non-Habitual Residence (NHR). Post NHR, depending on how the pension was funded, income can be taxed at scale rates of income tax, as an annuity or as a long-term savings vehicle. You do not need a QNUPS to access such benefits and it is worth noting here that there are non-pension-based investments that offer significant tax advantages, irrespective of NHR status.
Death benefits: in Portugal, only Portuguese-based assets are subject to Stamp Duty on death if the recipient is a non-directline ascendant or descendant. So, this tax can be avoided (if assets are passing to non-immediate family) by keeping any pension or investment structure outside of Portugal. You do not need a QNUPS to access this.
Currency options: Most EU-based savings and pension schemes can offer flexible currency investment and income options.
Cost: consolidation of assets can bring about cost savings, but a QNUPS requires a ‘platform’ or savings vehicle within it to hold investments. This adds an extra layer of cost to a client think carefully if the additional cost is worth the benefits of a QNUPS.
Income provision: you must take benefits from a QNUPS during your lifetime, you cannot leave the whole fund untouched as a tax-free legacy to your beneficiaries. This must be considered post-NHR when pension income can be aggressively taxed.
Political and legislation risk: QNUPS are based on UK legislation and in order to benefit from the UK IHT advantages must continue to do so, so are still at the mercy of the UK’s political and legislative regime.
QNUPS are a beneficial structure if used in the right circumstances however if miss sold, they can be expensive and unnecessary, as well as have a negative tax impact on death.
If you have or are considering a QNUPS and wish to discuss the cost and suitability for your circumstances, please contact us.