Retirement planning: Investing in UK property

 Most affluent clients understand the tangible and intangible benefits of property investment. Despite the inherent risks of investing in “bricks and mortar”, property acquisitions remain a very popular asset class. Simple to understand, yet complex to determine their optimal holding structure.

The purchase of UK property can bring along an array of tax complications. SDLT to commence the process, possibly ATED if held under a conventional company or trust, VAT or personal income tax if rental income is received, CGT when the property is eventually sold and then IHT on death. Phew!

However holding UK property investments under a UK registered pension plan may result in attractive tax efficiencies. Commercial property is often held very successfully in a UK Self Invested Personal Pension(SIPP) or a small self-administered pension scheme (SASS). These are good retirement planning options for individuals who want to use their pension fund to benefit from property investment. They allow for receipt of rental income that may be passed on to the pension member as pension income after age 55.Furthermore, UK pension assets are also sheltered from IHT on death. The downside to this arrangement is the restrictions placed on the value of UK pension funds by the UK lifetime allowance limits, currently set at £1,073,100 (2021/2022).This places severe limitations on the ability to place meaningful property investments into UK pension funds.

The introduction of pensions freedom in 2006 gave rise to the qualifying recognised overseas pension scheme (QROPs). These schemes provide the same tax benefits as other pension funds and were popular with those people looking to relocate out of the UK on a permanent basis. However they did not allow residential property investment within the pension portfolio. Additionally on occasions these schemes were abused by some UK financial advisers looking to attract relatively small pension pots from UK residents for investment in speculative overseas assets.

An interesting complementary, yet not widely known, solution is the possibility of holding UK property, both residential and commercial, under a qualifying non-UK pension scheme (QNUPS). This is an overseas pension scheme that is recognised by HMRC and enjoys the same IHT exemptions attributed to UK registered pension schemes. They adhere to a specific set of regulatory rules and can offer an excellent supplementary retirement vehicle to one’s UK pension scheme.

in order for a pension scheme to be considered a QNUPS by HMRC it must meet the following criteria:

·        The scheme must have the same retirement age as would apply in the United Kingdom

·        It must only provide income after retirement

·        It must be available to the local population in the jurisdiction in which it is located

·        It must be recognised for tax purposes in the jurisdiction in which it is located


A QNUPS needs to be designed with proper professional advice and established in the spirit of retirement planning.

They offer significant investment flexibility and can be setup under a trust-based or contract-based pension scheme, depending on the underlying structure and the tax benefits applicable to the specific circumstances. Whilst they do not attract UK income tax relief the pension assets are not subject to UK IHT. Additionally a QNUPS is able to hold both commercial and residential property in the UK but is not subject to ATED.

Written By Robert Guest

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