All QROPS Articles, QROPS

QROPS Israel | UK Pension Transfers to Israel


QROPS Israel | Pension Tax Relief for British Expats Resident in Israel and Israelis Who Have Worked in the UK and Retiring Back to Israel

QROPS Israel: British expats living in Israel or planning to retire in Israel can now transfer their pension into a QROPS Israel to maximize pension tax relief. British expats living in Israel can take advantage of their offshore status and transfer their UK pension offshore to somewhere secure like Malta and will no longer have to pay UK taxes on their pension as long as they remain tax resident outside the UK due to the Malta-Israel Double Taxation Agreement which means your pension is paid out gross in Malta with no tax deducted in Malta or Israel. Israelis who have worked in the UK and have built up a substantial UK pension pot can also take advantage and move their pensions to a Recognised Overseas Pension Scheme (ROPS) in Malta to avoid paying tax on their existing UK pensions whilst they are resident in Israel.

QROPS Israel: UK Pension Transfers Overseas for British Expats in Israel

Israel is a developed country and a representative democracy with a parliamentary system and universal suffrage. The Prime Minister serves as head of government and the Knesset serves as Israel’s unicameral legislative body. The economy, based on the nominal gross domestic product, was the 42nd-largest in the world in 2010 and it has one of the highest life expectancies in the world. Jerusalem is the country’s capital, although it is not recognized internationally as such, since it is located in occupied territories. In 2010, Israel joined the OECD.

Whilst you cannot transfer a UK pension directly to Israel, you have the choice of transferring a pension to Malta, Hong Kong, Gibralatar or New Zealand to get your pension out of the UK tax system and into a Registered Overseas Pension Scheme.

qrops israel

Why live and retire in Israel as a British expat?

There are over 44,000 Brits living in Israel. Israel’s diverse culture stems from the diversity of the population: Jews from around the world have brought their cultural and religious traditions with them, creating a melting pot of Jewish customs and beliefs. Israel is the only country in the world where life revolves around the Hebrew calendar. Work and school holidays are determined by the Jewish holidays, and the official day of rest is Saturday, the Jewish Sabbath. Israel’s substantial Arab minority has also left its imprint on Israeli culture in such spheres as architecture, music and cuisine.

What is QROPS Israel?

A Qualifying Recognized Overseas Pension Scheme (QROPS Israel) allows your UK pension to be transferred offshore to reduce your tax burden in the UK. 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 reporting requirements are done by the QROPS trustees on your behalf.

If you are living in Israel 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. Transferring a pension to a Malta QROPS / ROPS allows your pension to be paid tax free thanks to the Double Taxation Agreement between Malta and Israel which gives the taxing rights to Israel. Israel won’t tax your pension for the first ten years you are resident in Israel.

Can I Transfer My UK Pension to a QROPS in Israel?

Do I need to move my pension to Israel?

No. There are no QROPS in Israel available to accept private pension transfers. The best alternative is to move your pension to Malta which has a DTA with Israel meaning your pension will be paid out gross free from tax. New Zealand and Hong Kong QROPS / ROPS also attract zero income tax. If you are a British expat or an Israeli who has ever worked in the UK, your pension can be transferred to a jurisdiction such as Malta where it can grow without having to pay any UK taxes. Your pension can then be paid into your local bank account in Israel or an offshore bank of your choice in the currency of your choice.

You can receive 25% as a cash lump sum tax-free within the first 10 year tax-free period when you move to Israel. Any income you take from a QROPS is tax-free for the first 10 years, so a QROPS gives you a great opportunity to not only avoid up to 45% tax upon death after 75, but also UK income taxes of up to 45% in the UK and no taxes in Israel for the first 10 years.

More info can be seen here at Making Aliyah in Israel.

pension-transfer-israel

QROPS Israel Options: The Best QROPS Jurisdictions for a Resident in Israel

Transferring a Pension to Malta for a Resident in Israel

  • 25% tax-free cash lump sum allowed at 55
  • No tax in the UK as long as member remains tax resident outside the UK
  • No tax in Malta due to Malta-Israel DTA
  • No tax in Israel for first 10 years of residence in Israel
  • Full pension flexibility is allowed, so full access to pension pot allowed from age 55
  • Invest in currency of your choice
  • Invest in the mutual funds / ETFs / bond funds / unit trusts you want
  • Must take a pension drawdown at age 70
  • Regulated by the MFSA in Malta

Transferring a Pension to New Zealand for a Resident in Israel

  • 30% tax-free cash lump sum allowed at 55; the rest must give you an annual income for life
  • No tax in the UK as long as member remains tax resident outside the UK
  • No tax in New Zealand as an NZ ROPS is tax neutral
  • No tax in Israel for first 10 years of residence in Israel
  • Invest in pooled funds based on your risk tolerance
  • Investments are in GBP
  • Invest in the mutual funds / ETFs / bond funds / unit trusts you want
  • No need to take an annuity or enter drawdown at 70 years of age, so NZ QROPS is very suitable for inheritance tax / estate planning
  • Regulated by the New Zealand FMA

Transferring a Pension to Hong Kong for a Resident in Israel

  • 25% tax-free cash lump sum allowed at 55
  • No tax in the UK as long as member remains tax resident outside the UK
  • No tax in Hong Kong as a HK ROPS attracts a zero tax rate
  • No tax in Israel for first 10 years of residence in Israel
  • Full pension flexibility is allowed, so full access to pension pot allowed from age 55
  • Invest in currency of your choice
  • Invest in the mutual funds / ETFs / bond funds / unit trusts you want
  • Pension is an unvested, occupational pension scheme under strict pension regulation from the Hong Kong Occupational Retirement Schemes Ordinance
  • Regulated by the Hong Kong Monetary Authority

Transferring a Pension to Gibraltar for a Resident in Israel

  • 25% tax-free cash lump sum allowed at 55; rest must provide an income for life
  • No tax in the UK as long as member remains tax resident outside the UK
  • Flat rate of 2.5% income tax in Gibraltar at source
  • No tax in Israel for first 10 years of residence in Israel
  • Invest in currency of your choice
  • Invest in the mutual funds / ETFs / bond funds / unit trusts you want
  • Regulated by the Financial Services Commission in Gibraltar

What is the Tax on a UK Pension Scheme for Residents in Israel?

Recent changes in Israel tax practice may affect you adversely if you are resident in Israel and receiving pension income from a UK registered pension scheme.

Under the old rules, any new Israel residents could benefit from low rates of tax in Israel on their pensions for the first 10 years of residence (or 5 years for pre-1st January 2007 cases) with pensions being paid gross from the UK due to the UK-Israel double taxation treaty which is in place. Typical tax rates paid were 10% p.a. or 6.5% if aged 67 or over. However, it now appears that the Israeli tax authorities will treat such UK sourced pension income as “tax-exempt” in Israel meaning you may be exposed to UK tax and the double taxation treaty may no longer apply to your UK pension. This change in practice may result in some UK sourced pension income becoming liable to full UK taxation. Liabilities to UK taxation may have arisen already. But, there is a way to avoid UK taxation…

What is the Tax on a QROPS for Residents in Israel

A solution is to transfer your pension to a Recognised Overseas Pension Scheme in Malta, NZ or Hong Kong where your pension will grow tax-free and be paid gross, free from income tax. This can then be paid into an offshore bank account or paid directly into your Israeli bank account in a currency of your choice.

Income Tax in Israel

You need to draw your entire pension scheme in Israel in the first ten years of residence to avoid tax in Israel, that is why a Malta ROPS is a good solution if you are going to retire in Israel.

After 10 years, your overseas pension scheme would attract taxation a the personal income tax rates.

Personal Income Tax Rates in Israel

Income tax rates in Israel are normally between 10% and 50% depending on your income.

Residency rules for Israel: For Israeli tax purposes, the test for being an individual Israeli resident is the center of life, which takes into account the overall connections with Israel including family, economic, and social connections.

In addition, a presumption was determined according to which it is presumed that a person’s center of life will be considered as located in Israel if that person was present in Israel at least 183 days in a tax year, or was present at least 30 days in Israel in a calendar year and his/her total presence in Israel during the tax year and in the two preceding years was 425 days or more (this presumption can be contradicted by the tax authorities or by the individual).

[table “” not found /]
[table “” not found /]

There is also a tax exemption from capital gain taxation to new immigrants, returning veterans, or (under a much more limited scope) returning residents derived from assets located outside of Israel for 10 years subject to certain conditions; after 10 years, the exemption is reduced in a linear manner .

There is a tax exemption from taxation for a foreign resident selling shares in a Tel Aviv stock exchange traded company, subject to certain exceptions.

Sales of shares by a foreign resident in a private company is subject to certain exemptions and complex transitional rules as of 31st December, 2008.

Do I need to live and retire in Israel to claim the retirement benefits from a QROPS?

No. But, you need to have an offshore address in order to move your pension abroad. You can then live or retire anywhere outside the UK and claim QROPS / ROPS retirement benefits. Tax will depend on your country of residence at retirement and their tax treaty with your QROPS jurisdiction. If you ever move back to the UK, your pension will be taxed in the UK on income, but your death tax will likely be substantially reduced.

To find out more, please send us an email.

QROPS Israel: UK pension transfers for British expats in Israel article written by QROPS Specialists.

QROPS Israel | UK Pension Transfers to Israel by

Leave a Reply