Detailed comparison between QNUPS and an offshore bond

Yesterday's post on QROPS vs. QNUPS vs. offshore bond generated huge amount of interest especially asking about the differences between QNUPS and an offshore bond. I have created a table below detailing the differences from information gathered from international adviser magazine.

	Offshore Bond	QNUPS
Legal structure	Insurance policy - but normally used in conjunction with a Discretionary Trust for IHT planning	Discretionary Pension Trust
Contribution limits	Gifts into a Discretionary Trust for IHT purposes are limited to the nil rate band every 7 years i.e. £325k	HMRC do not define any limits. HMRC may challenge any contribution made to a QNUPS where it considers that they are made for the purpose of avoiding IHT, rather than funding for pension provision. Where the individual's standard of living is unaffected by the contributions, this provides evidence that IHT avoidance is not the purpose.
IHT planning	The settler must survive 7 years for the "gift" to be fully IHT efficient	Any permitted contributions or transfers are outside of the member’s estate immediately
Tax relief	No tax relief on premiums made in respect of UK residents	Any permitted contributions or transfers are outside of the member’s estate immediately
Permitted investments	Subject to the fund list of the chosen bond provider	Subject to the investment list of the QNUPS provider but can include access to Platforms, DFM portfolios, directly quoted equities, commercial/residential property
Fund taxation	Gross roll up	Gross roll up
Withdrawals	5% per annum - tax deferred	Subject to local pension rules - normally 30% TFC and similar income limits to UK drawdown
Change of provider	Unable to transfer bonds from one provider to another without incurring a chargeable event	Free to change from one provider to another subject to any asset transfer charges if applicable
Adviser fees	Post RDR come out of the 5% annual withdrawal allowance	Can be taken from the fund in addition to any other pension income payments
Fund payable on death	100% of the fund value at the date of death (Provided a Discretionary Trust was used and the settler survives the 7 years)	100% of the fund value at the date of death paid to beneficiaries - no "insurable interest" issues
Member HMRC reporting	Chargeable events reportable on self assessment return	Any pension income taken is reportable under the foreign pension income section and as such 90% will be subject to tax at the member's marginal rate
Regulation	By the Financial Conduct Authority	Depends on the local regulator e.g. In Gibraltar the Trustee is regulated by the Gibraltar Financial Services Commission
Compensation scheme	Covered by the FSCS	Subject to any local compensation scheme - normally none. However, as QNUPS are normally Trust based the investments are protected within the Trust themselves

QNUPS vs. QROPS vs. Offshore bonds - how do they differ?

Pensions are a prime concern not only for British Expatriates working overseas but also for UK Resident/Domiciled individuals who may have already utilised their maximum income tax exempt pension contributions. The pensions industry is full of jargon and abbreviations and as a Professor, I naturally want to explain them as simply as possible. Qualifying Non-UK Pension Scheme (QNUPS) are an offshore pension scheme for new funds or assets that are separate from your current pension scheme. A QNUPS does not require approval or reporting to Her Majesty's Revenue & Customs, unless assets are transferred to it from an existing UK authorised pension scheme. The main advantage of a QNUPS is that any funds invested immediately sit outside of Inheritance Tax (IHT), without needing to wait seven years and will grow tax free. There is no age restriction on when you have to stop investing, Income can be taken from age 55 or it can be deferred until age 75. Upon death, the funds and assets you have left within a QNUPS are free of IHT, allowing your beneficiaries to receive the proceeds tax free.

Qualifying Recognised Overseas Pension Schemes (QROPS) on the other hand has to be approved by Her Majesty’s Revenue & Customs to accept pension transfers from an authorised UK pension scheme. A QROPS offers enormous financial benefits for people of any nationality, who have accumulated a UK pension fund and are now living or planning to live out their retirement outside the UK.

An offshore bond on the other hand is essentially a life insurance policy specifically structured as an accumulation vehicle that upon death, passes on the proceeds of the policy plus an additional percentage amount to beneficiaries. An offshore bond is normally used in conjunction with a Discretionary Trust for IHT planning.