QROPS Canada. Pension Tax Relief for British Expats in Canada
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British expats resident in Canada, returning Canadian expats and British expatriates wishing to retire in Canada can now transfer their pension into a QROPS Canada to maximize pension tax relief. British expats living or working in Canada can take advantage of their offshore status and transfer their UK pension offshore to somewhere secure like Hong Kong, New Zealand or Malta and will no longer have to pay UK taxes on their pension if they stay offshore. A Hong Kong QROPS may be the best solution as there would be no tax applied to the QROPS in HK or Canada. However, there is no a 25% exit tax if you live in Canada when receiving retirement benefits from the HK QROPS.
It is no longer possible to transfer your pension to an RRSP in Canada, although you may get more flexibility by transferring to Malta instead.
We will discuss the various options below and argue that if you want maximum tax optimisation, a UK pension transfer to Hong Kong may be the best solution for residents in Canada, although there is an exit tax or move your pension to a UK SIPP is also a viable option.
Update: From 9th March, 2017, any UK pension transfers to Malta, HK, NZ QROPS will have a 25% exit tax applied for residents in Canada. Best advice for Canadian residents in 2017/18 is to transfer a pension to a UK SIPP or leave it where it is or transfer it to HK where there is zero tax and pay the 25% exit tax. Please contact us for the latest updates.
Canadian expats who have worked in the UK and who have built up a pension in the UK can also transfer their pensions offshore to NZ , Hong Kong or Malta to avoid UK taxation and transfer their pension into a US Dollar, Canadian Dollar or GBP portfolio. Their pensions can then be paid out in retirement into Canadian Dollars if required or kept in the original currency of investment.
An occupational or final salary scheme in the UK can no longer be transferred to an RRSP in Canada or into a QROPS (2017/18)
Personal private pensions or UK SIPPs cannot be transferred to an RRSP in Canada, but you can transfer to a QROPS which is outside the UK tax net and pension income is paid into your Canadian bank
Transfer UK Pension to a QROPS in Malta for British expats in Canada
For 2017/18 a QROPS in Malta faces a 25% exit tax if you retire in Canada and draw benefits there.
There has been a lot of misinterpretation by financial advisors in respect to Canada, but article 18 of the Double Taxation Agreement between Malta and Canada quite clearly states,
1. Pensions and annuities arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State.
2. Pensions arising in a Contracting State and paid to a resident of the other Contracting State may also be taxed in the State in which they arise, and according to the law of that State. However, in the case of periodic pension payments, the tax so charged shall not exceed the lesser of:
a) 15% of the gross amount of the payment, and;
b) the rate determined by reference to the amount of tax that the recipient of the payment would otherwise be required to pay for the year on the total amount of the periodic pension payments received by him in the year, if he were resident in the Contracting State in which the payment arises and if such total amount were his only income in that year.
3. Annuities arising in a Contracting State and paid to a resident of the other Contracting State may also be taxed in the State in which they arise, and according to the law of that State; but the tax so charged shall not exceed 15% of the portion thereof that is subject to tax in that State. However, this limitation does not apply to lump-sum payments arising on the surrender, cancellation, redemption, sale or other alienation of an annuity, or to payments of any kind under an income-averaging annuity contract.’
It is all in Finance Act Section 94. In other words, Canada is very comfortable with Malta QROPS at the moment as far are withdrawing your retirement income in Canada.
What you will immediately find in Canada (after our technical adviser travelled personally to see every major bank, insurance company and the Big 5 personally from Montreal, Toronto, Calgary and Vancouver) is that the knowledge on QROPS is virtually non-existent. There are some “specialists” but I find their opinions tend to state you can only do what their solution provides .. i.e. only transfer to a RRSP which is nonsense. In fact a UK pension that is only made up of 100% self-made contributions cannot be transferred to a RRSP full stop without a tax charge.
You can leave your pension in the UK, transfer to an RRSP in Canada or transfer to a third country, but if you transfer to a third country make sure it has a Double Taxation Agreement (DTA) with Canada.
The categorical fact is that at present you can transfer your pension to a third country QROPS. We have it on good authority that this has been discussed directly with the Finance Department of Canada. The CRA (formerly the Revenue Canada) cannot give a binding ruling, but will look at pension transfers on a case by case basis. If you wish, we can submit your pension details to them, but the CRA will charge clients directly to look into the tax implications of transferring.
The uncertainty lies in if you can still transfer to a QROPS after arrival in Canada. At present you can but there is a new draft law in legislation that could backdate to 2004 that could catch any transfer made whilst resident in Canada. Canadian tax is very complicated, but this is all wrapped up in what is known as Non- Resident Trust Rules (NRT) which are changing and also interacts with what is known as Immigration Trusts. We can get you specialist advice for very large pensions with the leading financial adviser on the subject in the UK and Canada.
A transfer made to a third country before arrival in Canada is always exempt. That is because the pension transfer is made when you are not resident in Canada, so the CRA couldn’t care less. We use Malta as there is a clear treaty between Canada and Malta and under Article 18 the agreement is there on how pensions are taxed and the co-operation between the two countries. Canada is comfortable with Malta. If someone says that you cannot please have them try to provide you with a reference to this in the Finance Act of Canada as we know of no such provision. What you usually get is someone’s interpretation but this is never backed with the actual statute reference.
Malta QROPS for Residents in Canada
What are the benefits of a Pension Transfer to a QROPS in Malta for British expatriates in Canada?
• You can take your pension at 55 years of age
• 25% tax-free cash lump sum allowed at 55
• Avoids UK income tax
• Avoids tax on growth and tax upon death
• Currency choice. You can choose to have your pension transferred to a QROPS denominated in USD, EUR or keep it in GBP. This can then be paid out to your bank account in Canadian Dollars or into USD into an offshore account
• Have the ability to make higher returns with freedom of investment by using low cost Exchange Traded Funds (ETFs) or “no load” mutual funds.
• Family Protection: Upon death, the entire pension pot gets passed on to your nearest and dearest
• Security: The pension is held in a secure jurisdiction such as New Zealand or Malta which both have Double Taxation Agreements with Canada.
Hong Kong QROPS for Resident in Canada
For 2017/18 a QROPS in Malta faces a 25% exit tax if you retire in Canada and draw benefits there.
The latest version of Hong Kong’s ROPS are vested, occupational pension schemes.
Article 17 of the HK-Canadian DTA clearly states, “Pensions (including lump sums) arising in a Party and paid to a resident of the other Party in consideration of past employment may be taxed in the Party in which they arise and according to the laws of that Party”.
This means that a HK ROPS would be taxed in Hong Kong where the pension arises, not in Canada. This is a very strong DTA that clearly gives the taxation rights to Hong Kong. Hong Kong has a zero rate of income tax for non-residents. You can read more about HK ROPS here.
What is a QROPS Canada?
A Qualifying Recognized Overseas Pension Scheme (QROPS Canada) allows your UK pension to be transferred offshore to reduce your tax burden. Effectively, you will no longer pay UK tax on your pension whilst you are offshore and after 10 years of living offshore, the reporting requirements to HMRC cease. These reports are done by the QROPS trustees on your behalf.
What Would Be the Tax Implications in Canada and the UK of a Pension Transfer to RRSP or to a QROPS?
There would be different tax implications if you transfer a UK pension plan into an RRSP or QROPS depending on the type of pension you currently hold.
Occupational Pensions where as part of a remuneration package an employer provides a retirement plan for employees (sometimes employees are allowed or are required to make extra contributions) and Personal Plans where individuals (and or employers) make contributions which are invested to provide retirement income.
Occupational Pension plans can be transferred to a Canadian Registered Retirement Savings Plan (RRSP). No tax is deducted in the UK and while the monies remain in the RRSP, no tax is payable in Canada. Once pensions are transferred out of the UK they only have to comply with the rules of the RRSP they are transferred into in Canada. Your UK pension funds would go into a Canadian RRSP which has been accepted by the Inland Revenue as a QROPS.
However, any withdrawals made from the RRSP within a 5 year period in which a person became UK non-resident for UK tax purposes could attract a UK tax liability.
You can access 25% as a lump sum and the rest must be invested to provide a pension. Should you withdraw this lump sum you must pay a withholding tax:
|Canadian Dollars||Anywhere in Canada||Quebec Only|
|Up to and including $5,000||10%||20%|
|$5,000.01 to $15,000||20%||26%|
|More than $15,000||30%||31%|
Although the Inland Revenue will allow tax-free transfers of Personal Pension Plans from the UK, Personal Pensions cannot be transferred to an RRSP in Canada and the receipt of the pension monies could create a tax liability in Canada.
In other words, if it’s a SIPP or personal pension plan, HMRC will let you get the money out of the UK, but CRA won’t let you transfer it to an RRSP when you get to Canada. In this case, you can transfer to a QROPS in Malta instead and have your pension income paid into Canada.
Residents of Canada are taxed on worldwide income (typically if you spend more than 183 days per year).
Non-residents are taxed on Canadian sourced income only.
In which case, your best bet could be to transfer your personal pension to a QROPS in another jurisdiction. The most appropriate jurisdictions are Malta and New Zealand which have Double Taxation Agreements with Canada, where it can grow outside of the UK tax system and would attract no tax on growth or upon death.
You may have to pay Canadian tax on income, but you would avoid all UK taxes and most importantly, the death tax of 55% that the UK imposes if you are in retirement and drawing your pension, meaning your family gets passed your entire pension pot as a 100% cash lump sum if something ever happened to you.
If you are living in Canada at the moment, you can take advantage of your offshore address in order to move your UK pension into a QROPS to avoid further UK taxes down the line. Please contact us for a free pension transfer analysis and suitability report on whether a QROPS would suit your circumstances or not
Tax on a QROPS for British Expats in Canada
If you move to a QROPS in Malta, your pension income would be jointly taxed between Canada and Malta upon drawdown. It is capped at 15% which is much lower than the UK income tax rate of between 20% and 45%. You also are not required to buy an annuity and there would be no tax upon death. 100% of your entire pension pot would be passed on to whichever beneficiaries you choose.
If you move to a QROPS in New Zealand, your pension income would be taxed in Canada upon drawdown. There would be no taxation in New Zealand. It is capped at 15%. You do not need to buy an annuity and there would be no tax upon death. 100% of your entire pension pot would be passed on to whichever beneficiaries you choose.
What would be the tax on a QROPS if I return to the UK from Canada?
As long as you live outside the UK, e.g. in Canada, you can move your pension offshore to a QROPS and reap the benefits. If you ever return to the UK, any benefits that you have drawn whilst outside the UK in a QROPS is not taxable in the UK. So, if you draw maximum benefits and then use top slicing, there may be almost no tax upon death in the UK if you return. You can also transfer your QROPS back into a UK SIPP if you wish.
QROPS Fees in Malta for British Expats in Canada
There are new QROPS trustees opening all the time. Currently, we use Sovereign, STM, Boal & Co and Brooklands, but we can use any trustee and we are all striving to get the lowest fees for our clients. But, here is a guide to typical fees:
300 GBP set up fee + 500 GBP per year for pension pots under 100,000 GBP
750 GBP set up fee + 900 GBP per year for pension pots over 100,000 GBP
“The fees are constantly changing, please email us for the latest, low cost Canadian QROPS Fees.”
Contact a QROPS Adviser in Canada
We can put you in touch with registered financial advisers in Canada who specialise in ROPS cases.
If you want to contact a QROPS Specialist in Canada, please contact us at firstname.lastname@example.orgQROPS Canada Pension Transfer for British Expats Moving to Canada by Richard Malpass