Setting up an offshore pension fund

Question:

In a UK Ltd company is it possible to establish an offshore pension fund for one of the shareholders or for both? What are the implications also in terms of IHT? Thks

Answer:

The simple answer to the question is yes. The challenge is ensuring you maximise the tax reliefs available.

There are recognised products such as EFURBS (Employer financed unapproved retirement benefits schemes) which provide some long term tax benefits but generally these products are used when maximum contributions into UK registered pension schemes have been exhausted. Any chance of corporation tax relief is actively being reviewed by HMRC and unlikely to continue for long.

Funds built up offshore will have resultant income or capital gains taxed when remitted on shore.

Great care needs to be taken in regard to inheritance tax. The HMRC Spotlight 5 & 6 (http://www.hmrc.gov.uk/avoidance/spotlights.htm) clearly shows these schemes are off the radar and on final approach to legislative changes.

Professional advice for individual and company circumstances should be sought.

For some companies the emergence of Qualifying Recognised Overseas Pension Schemes (QROPS) and Qualifying Non UK Pension Schemes (QNUPS) will provide the most tax efficient solutions. Tax relieved contributions to a UK registered Pensions scheme can be transferred offshore and once the member achieves five full UK tax years of non UK residence there may be significant advantages for the provision of more flexible cash and income and assurance of no UK inheritance tax liability. Obviously only useful if there is certainty of non UK residence but with large pension funds this can be a valuable planning tool.

This answer has been provided by our resident Pensions expert, Gary Barlow. If you'd like more detail on the above e-mail us and we'll put you in touch with Gary.

About the Author

He worked in Ernst & Youngs Entrepreneurial Services department for a number of years before setting up his own tax planning practice. He is now a full time tax author.

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