UK Pension Transfers to Canada RRSP
If you are already resident in Canada and are sure you want to retire there permanently, it is worth looking into a UK pension transfer to a Canada RRSP.
Many Canadian QROPS / ROPS have been closed recently as many did not pass HMRCs test to become a Registered Overseas Pension Scheme (ROPS) as they allowed access to a pension early or allowed pension for financial hardship or ill health which a UK pension does not allow.
However many Canadian RRSP’s have now been re-registered and relisted on HMRC’s ROPS site. You can find HMRC’s list of Canadian ROPS here.
However, we believe many will still fail HMRC’s member test on both allowing early age and allowing clients to borrow money for a residential house purchase, so may be sticken off HMRC’s list in this future. We advise caution when reading the fine print of an RRSP in Canada to make sure it qualifies to be a ROPS for HMRC.
Please read our latest article on Canadian RRSP ROPS here. The article has all the latest information on whether to transfer a UK pension to Canada RRSP under an HMRC approved ROPS or whether to move to a Malta ROPS or keep your pension in the UK.
Here are some of the more popular Canadian ROPS:
BMO Private Banking Retirement Savings Plan 527-014 Canada
BMO Retirement Savings Plan (ADVISOR) 527-016 Canada
CI Registered Retirement Savings Plan Canada
CIBC Investor Services Inc. Self-Directed Retirement Income Fund 186 Canada
CIBC Investor Services Inc. Self-directed Retirement Savings Plan 322-012 Canada
Scotia Retirement Income Fund (RIF) Canada
Scotia Retirement Saving Plan (RSP) Canada
Scotia Self-Directed Retirement Income Fund (RIF) RIF599 Canada
Scotia Self-Directed Retirement Savings Plan (RSP) RSP520-002 Canada
Here is a link to Scotia bank’s website. If you wish to transfer a pension to an RRSP in Canada, you will need to speak to a local, registered Canadian financial adviser who understands HMRC’s ROPS rules.
We can introduce you to a registered financial adviser in Canada who will take care of the transfer process.
Transferring a Final Salary Scheme to an RRSP in Canada
Only an occupational or final salary scheme in the UK can be transferred to an RRSP in Canada or you can transfer it into a QROPS offshore in Malta, Hong Kong or New Zealand.
However, at this moment, we recommend seeking advice for transfers to an RRSP and suggest it may not be appropriate due to this article by the FT that Canadian RRSP’s may be delisted on failing the HMRC member age test when receiving benefits.
Transferring a Defined Contribution Scheme to an RRSP in Canada
In any case, personal private pensions or UK SIPPs cannot be transferred to an RRSP in Canada, although you can transfer such DC pensions to a QROPS in Malta, Hong Kong or New Zealand, which is outside the UK tax net. The pension income is then paid directly into your local Canadian bank or an offshore bank of your choice.
A Malta ROPS has a Double Taxation Agreement with Canada and your income tax is shared and capped at 15% on income (2016). A Malta ROPS avoids tax on death at source.
Tax on a UK Pension in Canada
If you have decided to leave your pension in the UK, you should be declaring your pension in Canada and tax should be paid in Canada.
If you do not declare your UK pension, you could be exposed to fines, late penalties and/or imprisonment.
As global tax authorities are exchanging more information and government debt grows, global tax authorities are becoming more strict, even on small pensions.
Article 18 of the UK-Canadian tax treaty clearly states:
1. Periodic pension payments arising in a Contracting State [the UK] and paid to a resident of the other Contracting State [Canada] who is the beneficial owner thereof shall be taxable only in that other State [Canada].
2. Annuities arising in a Contracting State [the UK] and paid to a resident of the other Contracting State [Canada] may be taxed in that other State [Canada]. However, such annuities may also be taxed in the Contracting State in which they arise [the UK] and according to the laws of that State, but if the recipient is the beneficial owner of the annuities the tax so charged shall not exceed 10 per cent of the portion thereof that is subject to tax in that State [Canada].
In other words, if you have a pension paid in the UK, it should be taxed in Canada. But, in the event that it is taxed in the UK, the Canadian tax shall not exceed 10 per cent of the portion thereof that is subject to tax in Canada and there would be foreign tax credits available in Canada.
So, either your pension would be taxed in the UK or Canada or you could face double taxation on income and face UK tax on death: a UK pension gets taxed at 45% on any cash lump sums left to the beneficiaries of your pension pot on death.
This means that even though you are resident in Canada, your beneficiaries, often children based in the UK, face a 45% tax on the lump sum if you die after 75. Seeing as the average age of death is increasing and is now 84 for a man and 87 for a woman if you reach 65 years of age first, it is likely your pension would face a tax on death.
Tax on a QROPS in Canada
We will show you how to avoid a 45% tax on death in the UK after 75 and get your pension into the currency & investments of your choice.
Tax on your QROPS in Canada will depend on the type of QROPS you have.
If you transfer a UK pension to a Canadian RRSP, your pension will be moved into Canadian Dollars and your pension will be taxed on income in Canada. Usually, your funds will be invested in Canadian mutual funds and ETF’s by a registered Canadian financial adviser.
Canadian RRSP contributions in a Canadian ROPS are tax deductible in Canada.
Once in a Canadian RRSP however, it can be difficult to move out and you also may not be able to control your investments if you retire abroad back to the UK or another country abroad.
Therefore, a Canadian ROPS is only for those who will certainly be retiring in Canada and not moving anywhere afterwards. Also, the Canadian RRSP MUST satisfy the requirements to be a ROPS or you could be taxed at 55% on any benefits you receive from the ROPS.
Malta QROPS for Residents in Canada
A Malta ROPS will be taxed and capped at 15%. This tax is shared between the two jurisdictions under article 18 of the Malta / Canada tax treaty.
A Malta ROPS allows full pension flexibility, i.e. you can take as much of your pension as you like in either income or periodic cash lump sums. How this is distributed matters.
Lump sum payments are not covered by the Malta-Canada treaty though, so if Malta allows flexible pension rules, same as the UK, then ROPS members would have to pay full Canadian income tax or it may be taxed as capital in Canada. See 18 (3) of the Malta-Canada DTA in the link above.
It would however, avoid all UK taxes including the taxes on death.
You can also choose which currency and investments you want. Many pensioners opt for a pension in US Dollars as the investment choices are wider. Click here for more on Malta ROPS for residents in Canada.
New Zealand QROPS for Residents in Canada
New Zealand is a tax neutral destination, so an NZ ROPS would only be taxed on income in Canada. New Zealand also has a DTA with Canada, which gives the taxing rights to Canada.
Your pension would be managed by a discretionary fund manager in New Zealand. This is a good choice for those who don’t want to manage their investments and want a safe, secure place for their pensions. Returns average around 5% per year, but are fairly secure.
Hong Kong QROPS for Residents in Canada
A HK ROPS is unvested, occupational and tax registered, which many foreign tax authorities prefer. There is no tax on a HK ROPS and you can choose the currency of your choice and the investments. A pension can be self-directed, but the trustees must sign off on investment decisions.
Most importantly, though, the HK-Canada DTA gives the taxation rights to Hong Kong under article 17. This is most likely because HK pensions are occupational schemes.
“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.”
In other words, income tax is zero as you are taxed in Hong Kong at a zero rate rather than in Canada.
You then file it under “T1135 Foreign Income Verification Statement“.
Personal Income Tax in Canada
A ROPS in Malta and New Zealand faces a flat 15% rate income tax in Canada. A HK ROPS faces no income tax in Canada. However, for other sources on income, please see below.
If you are working in Canada as well, here are the personal income tax rates in Canada.
Federal tax rates in Canada are:
15% on the first $44,701+ of taxable income;
22% on the next $44,700+ of taxable income (on the portion of taxable income over $44,701 up to $89,401);
26% on the next $49,185+ of taxable income (on the portion of taxable income over $89,401 up to $138,586);
29% of taxable income over $138,586.
There may be other municipality taxes in Canada on top of the federal taxes which range from 7% – 21%.
However, your QROPS / ROPS will only be taxed at 15%.
Please contact us for more information and find out the latest QROPS fees and news for residents in Canada.