Selling a business? Five reasons to consider a QNUPS

First things first; it stands for Qualifying Non-UK Pension Scheme. Whilst not strictly speaking the name of a pension, QNUPS is the strict regulation that an overseas pension needs to adhere to in order to be deemed acceptable by HMRC. But, for simplicity, we’ll refer to all qualifying schemes as ‘QNUPS’ throughout.

What’s the attraction?

One of the challenges for business owners planning their exit strategy, or any high-net-worth individual with a large cash sum for that matter, is what to do with it? In some circumstances, setting up a QNUPS could be the answer. Here are just five benefits for business owners:

  1. Assuming you have owned your business for two years, you are eligible for Business Relief when you sell it. This provides a reduction of up to 100% Inheritance Tax (IHT) for your business and 50% for some related assets. If and when you sell for cash, this relief is lost. Your estate is immediately impacted and when you die your estate could be liable for greater IHT. Introducing funds into a QNUPS immediately solves this problem, as the cash is immediately back outside of your estate for IHT purposes.
  2. As an entrepreneur, if you’d like to invest in other businesses by buying shares you would not qualify for Entrepreneur’s Relief, unless you were an employee of the business. This means you could be liable for Capital Gains Tax (CGT). QNUPS are exempt from CGT, so there would be no tax liability if the shares were owned by the pension. Win, win!
  3. Whilst you are only able to pay a maximum of up to £40,000 Annual Allowance into a UK pension, QNUPS are not limited by this. You can maximise your permitted Annual Allowance, which may in reality be less than £40,000, then begin funding a QNUPS.
  4. The UK Lifetime Allowance is the maximum value your pension can reach without attracting additional tax on income. Currently the limit is £1.055 million, which can be surprisingly easy to exceed with years of contributions and investment growth. A QNUPS is not limited by this figure and can be used to exceed and boost retirement income.
  5. A QNUPS typically offers usual UK pension investment options, such as collective investments, bonds, equities, gilts and cash. Like a Self-invested Personal Pension (SIPP) or Small Self-Administered Scheme (SSAS), some also offer the ability to invest in commercial property. But this is where things get a little more interesting. Certain QNUPS, depending on the scheme rules and local jurisdiction where it’s based, let you invest in;
  • Residential property; brilliant if you are a property investor
  • Art collections
  • Classic cars
  • Fine wines

This obviously opens up a wide range of assets to diversify your portfolio with alternative investments, although we should mention there can be higher risk when investing in a single asset, such as a car.

Rules and stipulations

First and foremost, a QNUPS must be set up for retirement. In that light, it is treated in a similar way to UK pensions:

  • You can make withdrawals from age 55
  • You will receive a Pension Commencement Lump Sum (PCLS) of 25%
  • The remainder of the fund can provide an income via Drawdown

Unlike UK pension contributions, QNUPS contributions don’t attract tax relief. The pension funding also needs to be proportionate to your income, wealth, and correspond to the level of retirement income you need to support your lifestyle.

The rules are rather complex and do require a professional financial planner’s input, but we have a great deal of experience in this area. If you’d like to discuss tax-efficiently investing the proceeds of your business sale, or if you have a large sum to invest and have already maximised your UK pension tax-efficient allowances, we’re here to help.

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