QROPS South Africa. Pension Tax Relief for British Expats in South Africa
British expats living in South Africa or wishing to retire in South Africa can now transfer their pension into a QROPS South Africa to maximize pension tax relief. British expatrites living or working in South Africa can take advantage of their offshore status and transfer their UK pension offshore to Malta or New Zealand in order to avoid UK taxation.
Also, South Africans who have worked in the UK and built up a substantial private pension in the UK can also transfer their pension out of the UK and out of the UK tax net.
Why live or retire in South Africa as a British expat?
There are more than 214,000 British expatriates in South Africa. South Africa contains large communities of European, Asian, and mixed race Africans. Around 80% of the population in South African are black Africans from a diverse range of ethnic groups who also speak different languages of which nine have an official status, but most South Africans speak English. Christians account for nearly 80% of the population.
For the British expats living in South Africa, you can take advantage of your offshore address to reduce UK tax on your pension as well as protect your wife and children from high taxation should anything happen to you. One of the benefits of a QROPS is the availability to hold multiple currencies, so you could hold a portion of your pension in Pounds, Dollars, Euros or Rand or hold the entire pension in one currency. Furthermore, upon death your loved ones would receive the whole pot as a lump sum cash payout. Under UK rules, they could face a 55% tax charge upon death.
QROPS South Africa. Benefits of a QROPS for British Expats in South Africa
What are the benefits of a QROPS Pension Transfer for British expats in South Africa?
• Avoid UK income tax
• Avoid UK dividends tax
• Avoid UK capital gains tax (CGT)
• Avoid UK inheritance tax (IHT)
• Currency choice. You can choose to have your pension transferred to a QROPS denominated in USD, EUR, Rand or keep it in GBP
• Have the ability to make higher returns with freedom of investment
• 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 Malta or New Zealand which have their own strong financial regulations which are tax efficient
What is QROPS South Africa?
A Qualifying Recognized Overseas Pension Scheme (QROPS South Africa) 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.
If you are living in South Africa at the moment, you can take advantage of your offshore address in order to move your UK pension into a QROPS South Africa to avoid further UK taxes down the line.
There have been a lot of changes to QROPS rules over the last few years which has arguably strengthened the market and made the rules more clear. Now, not only do you have to look at the various QROPS jurisdictions, but you also need to look into the details of the particular individual Double Taxation Agreements between your country of residence and the QROPS jurisdiction, especially where the QROPS is held in a country outside of the UK and the country you reside in.
QROPS South Africa. QROPS Pension Transfer to Malta
Malta agreed their Double Taxation Agreement (DTA) with South Africa on 16/05/1997 and was enforced from 12/11/97. The taxation should be shared under Article 18 which covers
Pensions and Annuities
- 1. Subject to the provisions of paragraph 2 of Article 19, pensions and similar remuneration and annuities arising in a Contracting State and paid to a resident of the other contracting State may be taxed in the first-mentioned State.
- 2. Notwithstanding the provisions of paragraph 1, pensions paid and other payments made under the Social Security legislation of a Contracting State shall be taxable only in that State.
In other words, the income is to be taxed in Malta. In this case the personal income tax in Malta would range between 15% and 35%, but this is less than the personal income tax in South Africa which is between 18% and 40%. If you transfer your pension to Malta, you avoid UK taxes of 55% tax upon death and UK income taxes of up to 50%. You would only face a tax at source in Malta of between 15% and 35%. This would only be on your income when you decide to take a pension which must be taken between the ages of 55 and 70.
You have freedom of investment to purchase most shares on the major exchanges, such as the FTSE100 and S&P500. You can also purchase ETF’s, mutual funds, hedge funds, bond funds, gilts or simply transfer your pension to a high interest bank account. You can choose which currency you want to transfer your pension to and we can help you get the best exchange rate upon transfer.
QROPS South Africa. QROPS Pension Transfer to New Zealand
New Zealand and South Africa’s Double Taxation Agreement was signed on 6th February 2002 and the New Zealand-South Africa DTA came into force 23rd July 2004. The DTA between the two countries is covered in article 26 of the agreement.
QROPS are covered under pension and annuities in article 17.
Pensions and Annuities
- 1. Subject to paragraph 2 of Article 18, pensions and annuities paid to a resident of a Contracting State shall be taxable only in that State.
- 2. The term “annuity” means a stated sum payable periodically at stated times, during life or during a specified or ascertainable period of time, under an obligation to make the payments in return for adequate and full consideration in money or money’s worth.
In other words, your QROPS would be paid out in NZ where it is tax free and then it would be taxed at the relevant personal income tax rates of between 18% and 40% in South Africa which is still lower than UK taxes of between 20% and 50% (2013).
One of the benefits of a pension transfer to NZ is that there is no maximum age for drawing pension benefits, unlike Malta where you have to take a pension income at 70. This means you could use the NZ QROPS simply as an estate planning tool if you are not interested in drawing income. This way, upon death, your spouse or nominated beneficiaries would get 100% of your pension pot upon death without any taxation deducted.
The drawback with most NZ QROPS though is that most of them have a discretionary fund manager who employs one of five investment strategies. You wouldn’t be able to buy whatever you liked. In this way, it is much more restrictive than the Malta QROPS portfolio, but if safety and estate planning with no IHT and a simple set up is what you are looking for, then a Malta QROPS would fit the bill.
However if drawing the largest pension income is your main priority, then you should go with a Malta QROPS or an Isle of Man QROPS. Malta allows a 30% lump sum plus 120% of UK GAD rates in drawdown. But, it further offers what are known as ‘programmed withdrawals’. This means that every 3 years, the member of the QROPS can take up to 50% of any increase in the value of the portfolio. For those with particularly large pensions, this could be a substantial amount.
QROPS South Africa. QROPS Pension Transfer to the Isle of Man
If they opt for an Isle of Man QROPS, they can take a higher pension income again, as the Isle of Man can work out your pension income using their own actuaries. This means that you can take a pension based on a 6% return on your investment each year rather than UK GAD rates which are based on 15 year UK gilt yields (which currently stand at 2.25%).
Furthermore, under the Isle of Man, the 20% income tax would be covered under ‘unilateral tax relief’. Seeing as South African taxes are between 18% and 40%, any taxes in the Isle of Man will be taken as a credit before paying South African taxes, so you don’t pay tax twice. You would avoid the 55% tax upon death and UK income taxes. You would get freedom on investment to invest in most ETF’s, mutual funds, bond funds, hedge funds, cash, etc. and you could enjoy a higher pension income at retirement.
So, there are a range of choices if you are a British expat in South Africa. or South African who wants to get their pension out of the UK for tax efficiency. The route you take depends on the type of pension you currently hold, the income you would like to receive in drawdown, the investments you would like to make and where you will finally retire. But, with the right planning, you should get a tax efficient pension delivering you the income and protection your require.
For enquiries, please send email to firstname.lastname@example.org
Pension tax relief for British expats, QROPS South Africa article written by QROPS Specialists.