Selling property held in QNUPS
Please be advised that the information in this article regarding QNUPS and IHT is no longer accurate due to the recent changes announced in the UK Budget. Starting in April 2025, the regulations will have significant implications that may affect your understanding of these topics. We encourage you to stay informed and consult with a Soteria Trusts expert to navigate these changes effectively.
There are many advantages to putting an investment into QNUPS, one of which is to have the option to also transfer their investment property to the pension, but what happens once you’ve done that? Is it possible to easily sell the property, are there any restrictions, or do I have to wait until a certain age before I can sell it? The good news is that you can request that the property be sold at any time. So, what does the process look like, how much can I take out and do I need to pay any additional taxes if I decide to do so?
Benefits for landlords to transferring their buy-to-let property in QNUPS
The uniqueness of QNUPS – allowing property as an asset class to be held in the pension plan – makes this type of retirement plan, which can be administered either under trust or as a contract, trust or contract-based pension especially alluring to landlords with UK property. For property lovers placing residential property into a pension is the major benefit of a QNUPS, especially when compared with local pension schemes which usually have a menu of ‘restricted investments’ and also have preset or capped funding limits. A QNUPS allows the member to achieve greater returns because none of the asset’s growth is taxable during the investment period.
QNUPS are an overseas pension and are subject to foreign income pension rules
Depending on where the QNUPS is set up, the rental income from any investment property may be taxed at a lower rate than the personal income tax rate which is a minimum of 20% and could be as much as 45%. What’s especially interesting is that unlike if the property were held in the members’ sole name outside the pension, there is no Capital Gains Tax (CGT) on the sale of the property that has been held within the QNUPS. Moreover, property that is transferred in QNUPS is not liable for Annual Tax on Enveloped Dwellings (ATED) or Inheritance Tax (IHT).
Can I sell property held in QNUPS?
Yes, you can sell an investment property you have put in QNUPS at any time. The process is not much different from the one you would follow if you were to sell a property that is not held by you personally. The first step to selling a QNUPS held property would be to notify your trustee/ QNUPS administrator about your intention to sell the property.
Selling a property held in QNUPS
When you decide it’s time to sell a QNUPS held property, you should follow these steps:
Review Trust Documentation and/or Scheme Rules
To ensure everything is in order before placing the property on the market, carefully review the QNUPS documents to verify the scheme administrator is empowered to sell the property. If no restrictions exist, then work with them to make sure the title deed is clear of any encumbrances, allowing the transaction to go ahead and the property transferred to the new owner when one is found.
List the property for sale
Find a motivated and experienced real estate agent to list the property for sale — the agent should ask to review the scheme documents and even speak to the QNUPS administrator before advertising the property for sale.
Exchange of contracts
Having found a buyer and agreed to the price and completion date, a deposit is paid to the scheme administrator who will require a legal conveyancer to deal with the transaction on behalf of the pension. The conveyancer will be appointed by the administrator and amongst other things will conduct local searches to ensure the title is clear before reviewing and exchanging contracts. Exchanging contracts is binding on both parties with the pension now obliged to sell and the purchaser committed to legally completing the purchase.
Completion
A date for final completion is normally agreed upon as being 6 – 8 weeks in advance. This allows the buyer time to secure any finance as required. The buyer also appoints a conveyancer who will be doing similar checks to those carried out by the sellers, such as checking if the title is clean and also doing various local searches.
On the day of completion, the agreed purchase price minus any deposits already received by the pension will be transferred to the seller’s legal representative. Any debt secured against the property will be redeemed to the lender and the net sale proceeds will be transferred to the bank account of the QUNPS administrator – of which the member is the beneficial owner.
Are there any taxes or charges due?
Any fees associated with the sale (agent, legal, taxes etc.) will be dispersed at completion and the remaining funds are left in the pension account waiting for the members’ influence on any future purchases, allocations, or distributions.
Had the property been held in your name, you would be liable for Capital Gains Tax which is charged at 28% on any gains made from the increase in property value from April 2015. This date saw changes in CGT legislation, and an increase in tax due from the previous lower rates of 10 – 18%, as well as requiring that any CGT due is paid within 30 days after the sale.
As the property was not held in your name, there is no CGT due. Instead, there could be corporation tax to pay, which is paid at the pension level on an annual basis, currently at a rate of 19%. All operating expenses of the pension and any losses made on other investments held within the pension on behalf of the member during the tax year can be offset against the gains, bringing the effective rate to less than19%.
Please be advised that this article is for informational purposes only and does not constitute any legal or binding advice. Pensions, QNUPS, and tax are intricate topics and should be carefully considered. Should you have any questions regarding QNUPS, please contact Soteria Trusts for a one-on-one consultation.
