QROPS Guide 2016 – Malta Vs Gibraltar Vs NZ Vs HK QROPS

QROPS Guide: Malta Vs Gibraltar Vs NZ Vs HK ROPS / QROPS

The QROPS Guide / ROPS Guide for 2016/17 – let’s look through the lens of these various ROPS jurisdictions and see which is the optimal tax solution, which QROPS jurisdiction allows the most access to your funds, which ones are the most secure and which ones give you the most investment options.

Every year seems to bring a different QROPS jursidiction to the forefront. Now that HMRC have scrapped QROPS, which have now been formerly replaced by ROPS or Recognised Overseas Pension Schemes, the changes are here again, expect more changes next April, as they change every year, but these are the current rules and so far, HMRC hasn’t changed any tax rules retrospectively, so you can lock in under the current rules below until April 6th, 2017.

Apparently, under consultation, HMRC are thinking of eradicating the personal allowance for 2016 for expats. I think this is unlikely. HMRC want to keep your pension in the UK, so that you are taxed in the UK. Getting rid of the personal allowance would open the floodgates for pension transfers. But, we will see next April 6th, 2016.

For this post, we will look at the different ROPS and how they may be taxed and the consequences of using each scheme. First off, we need to talk about the tax-free lump sum. Presently, Gibraltar is offering a 30% tax-free lump sum. Some Malta pension schemes are offering this as well. But, this is really a work around of the rules. For Malta ROPS that allow full pension flexibility, i.e. allow you to encash your pension when you want, the max tax-free cash lump sum is 25% at 55 years of age.

HM Revenue & Customs (HMRC) registered pension rules require providers to ring-fence 70% of the fund for paying benefits after retirement and to pay a maximum 25% tax free lump sum. So, some jurisdictions are just allowing an extra tax-free drawdown to make up the 30% that comes from the portion that doesn’t have to pay a lifetime income.

This will likely all be thrown out with the new UK pension freedoms & flexibilities. With Malta & Gibraltar schemes re-writing themselves to be fully pension flexible, the tax-free PCLS (Pension Commencement Lump Sum) will certainly only be 25%. Any further drawdowns or lump sums would be taxed as appropriate in either the QROPS/ROPS jurisdiction, the country you retire in, both or neither.

Simple right? No, far from it. You need to delve into all the different tax treaties and DTA’s between the ROPS jurisdiction and the country of your retirement to figure out where your pension will be taxed. If you want a simple ROPS solution, I suggest New Zealand or Hong Kong which have zero tax at source.

qrops guide

Let’s have a look at each jurisdiction to see where you may want to place your pension. The choice is more chess than checkers, so discuss the options with your financial adviser, preferably a QROPS specialist.

Hong Kong ROPS / QROPS Guide 2016

HK QROPS are becoming increasingly popular… let’s see why…

  • Hong Kong QROPS are unvested, occupational, registered and tax recognised
  • Hong Kong ROPS are overseen and registered by the HK MPFA
  • Full pension flexibility is allowed after 55,  but be aware that extra lump sums may be taxed as capital and not income in your country of retirement
  • 25% tax-free lump sum
  • The Hong Kong Occupational Retirement Schemes Ordinance (“ORSO”) came into force on 15th October 1993, and is the governing legislation for the regulation of voluntary occupational retirement schemes operating in or from Hong Kong.
  • Members CANNOT direct their investments
  • As it is an unvested scheme and is a 402 (b) master trust, it is suitable for US residents, both Americans who have worked in the UK returning  to America and British citizens who are moving to work & retire in the USA.
  • Hong Kong has Double Taxation Agreements with 32 other countries. Most of these DTA’s give the taxing rights to Hong Kong
  • There is no tax in Hong Kong on income sourced from outside HK, so a HK ROPS will not be taxed and due to the DTA’s, in many cases you avoid income tax altogether as well as avoid tax on growth and death
  • Currently, it avoids UK taxes even if a client returns to the UK
  • Clients can invest in multiple currencies and various mutual funds and ETF’s, etc.
  • Pension can be paid out as 100% lump sum to named beneficiaries on death or the pension trust can continue to be paid out as an income to beneficiaries after death  if required.

Gibraltar ROPS / QROPS Guide 2016

  • Gibraltar ROPS are one of the more popular destinations for advisers who don’t really know where to place clients and don’t understand the various Double Taxation Agreements.
  • Gibraltar doesn’t have any Double Taxation Agreements with other countries
  • Gibraltar has a flat rate of 2.5% income tax at source
  • 30% tax-free lump sum allowed at 55 years of age, but this may change to 25% if new pension freedoms allowed for full flexible drawdown
  • No tax on growth or death in Gibraltar or the UK
  • Avoids UK taxes as long as client remains resident abroad
  • Wide choice of investments including mutual funds, ETF’s, shares, etc.
  • Choice of currencies
  • ROPS paid out to named beneficiaries on death

Malta ROPS / QROPS Guide 2016

  • Malta ROPS are popular for those retiring in Europe
  • Malta has over 65 Double Taxation Agreements, more than any other country
  • Full flexible drawdown allowed in Malta: your income tax will depend on the tax treaties in existance
  • The tax in Malta if a DTA exits can be zero or shared between Malta and your country of residence in retirement
  • If no DTA exists, income tax can be up to 35% in Malta, so for inexperienced advisers, please seek technical advice for your clients.
  • 30% tax-free lump sum (PCLS) Allowed
  • No tax on growth or death in Malta or the UK
  • Avoids UK taxes as long as client remains tax resident outside the UK
  • Wide choice of investments including mutual funds, bond funds, ETF’s, shares, etc.
  • Choice of currencies
  • ROPS paid out as 100% cash lump sum to named beneficiaries on death

New Zealand ROPS / QROPS Guide 2016

  • New Zealand is the safest option for both clients and for inexperienced advisers.
  • This is because New Zealand is a tax neutral ROPS jurisdiction which attracts zero tax at source in New Zealand, so in most cases, you only pay income tax in your country of residence when drawing retirement benefits (e.g. after 55)
  • The investment options are more limited than ROPS in other jurisdictions as funds are pooled & licenced in NZ. You cannot self direct your investments, however, this gives an element of safety for those wishing to transfer pensions offshore to a secure OECD jurisdiction with strong financial regulations.
  • Although there is a narrower choice of investments, the choices are normally a lot less risky than some other QROPS / ROPS jurisdictions which often allow unregulated investments
  • New Zealand also has many DTA’s with countries all around the world, although the impact of those DTA’s is at worst tax neutral, usually with income tax paid in your country of retirement, unless the DTA gives the taxing rights to NZ, which is unusual
  • 30% tax-free cash lump sum allowed at age 55; the rest must provide an annual income for life
  • Any increase in the growth of the value of the fund after transfer can also be accessed as a further lump sum at later dates
  • No tax on growth or death in New Zealand
  • Avoids UK taxes as long as client remains tax resident outside the UK
  • A NZ ROPS is paid out and invested in GBP only, there is no currency choice
  • 100% of ROPS is paid out to beneficiaries of choice on death and you can allocate the percentages
  • No need to take a mandatory annual retirement income at 70 like in Malta; this makes a NZ ROPS a better inheritance planning tool if you have no desire to access your pension and want to pass the whole pension pot on to your beneficiaries whilst still having the option to take income at a later date if required, for example, for health reasons later in life

Other QROPS Jurisdictions

QROPS Guide for other jurisdictions: I have listed these QROPS first as I believe they are the most easy to explain for clients. Isle of Man QROPS are also popular, but often face up to 20% income tax if no DTA exits, of which there are few, and also suffers a 7.5% tax on death. Guernsey now also faces a 20% income tax unless you were lucky enough to transfer your pension abroad before HMRC changed the rules a few years ago.

Most Australian QROPS were closed as well as Kiwisaver schemes in NZ as they allowed early retirement before 55 due to hardship or illness. Swiss QROPS also were delisted on failing of the ROPS requirements. Some Australian SMSF’s are starting back up now, so check HMRC’s list if you wish to transfer your pension to Australia.

If you are over 55 years of age, you can now transfer to any Australian SMSF which qualifies as a ROPS.

There are also a number of ROPS in India.

If you need advice on any of these ROPS / QROPS, we are independent advisers and can source the best value QROPS for you or point you in the right direction. We have contacts with regulated advisers in Australia, the USA and India which are popular destinations.

Please contact us for the latest information and lowest QROPS fees.

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