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QROPS South Africa | UK Pension Transfers to South Africa 2017/18


QROPS South Africa | UK Pension Transfers for Residents in South Africa

QROPS South Africa – British expats living in South Africa or wishing to retire in South Africa or anywhere else abroad can now transfer their UK pension into a QROPS to avoid UK taxation on their pension schemes. You used to be able to avoid the 45% income tax imposed in South Africa on retirement funds by moving your pension to a QROPS in Hong Kong, however, this all changed with the South African Budget in 2017.

SARS announced they would tax South Africans working in any country with a “zero tax rate”. You can see more in this article concerning tax on South Africans living abroad. So now, South Africans living in Qatar or Dubai can be taxed in South Africa. This has now limited the choices for South Africans living overseas. On top of this, HMRC introduced a new 25% exit tax on UK pension transfers for anyone transferring to a “third jurisdiction” such as Hong Kong.

There are QROPS schemes in South Africa, but most of them are group pension schemes not suitable for receiving private pensions or your final salary pension scheme.

Transferring to a QROPS in South Africa would also turn your pension into a Retirement Annuity with the South African providers, making it more expensive in South African Rand ZAR and subject to local regulations and investment restrictions; it would also remove the portability of your pension for South Africans who may want to emigrate in future.

So, under current rules, an international SIPP (self invested-pension plan) which comes under UK rules, may prove most suitable. Under Article 17 of the SA-UK Double Tax Agreement:

“Subject to the provisions of paragraph 2 of Article 18 of this Convention: (a) pensions and other similar remuneration paid in consideration of past employment, and (b) any annuity paid, to an individual who is a resident of a Contracting State shall be taxable only in that State.”

In other words, a UK SIPP should be taxed in South Africa. However, you need to inform HMRC of your tax residence in South Africa, otherwise tax will be deducted at source in the UK.

UK Pension Transfer Options for South African Expats in 2017/18

  1. Transfer your pension to a South African QROPS in ZAR: this would destroy future retirement portability, limit investment options and your pension would be a retirement annuity under SA rules. You also pay SA income tax on your pension income
  2. Transfer to a QROPS in Hong Kong and pay a 25% exit tax on transfer; there would be no tax on growth, on your pension income at retirement or on death
  3. Transfer to a UK SIPP: there is up to 45% tax on death after 75, no tax on death before 75, you would only pay South African tax at up to 45%; no tax in the UK on income

So, depending on your circumstances, you have a multitude of options. For those South Africans with a large pension pot and close to retirement, it may be better to pay a flat 25% tax now, then a 45% tax at a later date. For most, transferring to a UK SIPP and choosing investments wisely may be the better option.

The rest of the article below was written before March 2017, there is now a 25% exit tax for any QROPS which is not held in South Africa for South African residents.

South Africans who have worked in the UK and built up a substantial private pension or final salary scheme in the UK can also transfer their pension out of the UK and out of the UK tax net.

You can either transfer your pension to a South African Retirement Annuity fund in SA Rand (ZA) or move to a tax neutral destination in the currency of your choice, GBP / USD / EUR. You can see the latest South African ROPS list here.

For tax purposes and flexible income options, you can transfer your UK pension to a tax neutral or tax advantageous destination such as New Zealand, Malta or Hong Kong. Your pension is just “parked” there for tax purposes. Your retirement benefits and pension income will be paid directly into your local South African bank account or any offshore bank account of your choice at retirement.

British expatriates living or working in South Africa can take advantage of their offshore status and transfer their UK pension offshore to a QROPS in Malta, Hong Kong or New Zealand in order to avoid UK taxation. We will look into these choices to see which one best fits your retirement outcomes.

QROPS South Africa: Your Choice

  • Move your UK pension to a ROPS in South Africa if you want a retirement annuity paid out in South African Rand (ZAR)
  • Move your UK pension to a ROPS in Hong Kong for the optimal tax solution and pay zero tax in South Africa on your retirement income and no tax on either growth or death as long as you don’t return to become tax resident in the UK; however, since March 2017, this now has a flat rate 25% exit tax
  • Move your UK pension a ROPS in Malta if you want to access your full pension from age 55 years of age, however you would pay SA income tax and there is a 25% exit tax
  • Move your UK pension to a ROPS in New Zealand if you want the best inheritance planning tool, as there is no requirement to access your pension pot: there is no maximum age for drawdown and you can secure a pension to pass on to your beneficiaries upon death; there is now a 25% exit tax

We can also help returning South Africans avoid South African Capital Gains Tax, Donations Tax and Estate Tax if they want to start a new pension plan (please click here for more details).

qrops south africa

New Income Tax Rates in South Africa for 2017

The South African currency is the Rand. Currently there is approximately 16 South African Rand to the Pound. You can visit here for the latest GBP/Rand exchange rates and five year chart.

Taxable Income (Rand) Income Tax Payable (Rand)
0 – 189 880 18%
189 881 – 296 540 34 178 + 26% of the amount over 189 880
296 541 – 410 460 61 910 + 31% of the amount over 296 540
410 461 – 555 600 97 225 + 36% of the amount over 410 460
555 601 – 708 310 149 475 + 39% of the amount over 555 600
708 311 – 1 500 000 209 032 + 41% of the amount over 708 310
1 500 001 and above 533 625 + 45% of the amount over 1 500 000

Tax on Retirement Lump Sum Benefits in South Africa for 2017

Taxable Income (Rand) Income Tax Payable (rand)
0 – 500 000 0% of each Rand
500 001 – 700 000 18% of the amount over 500 000
700 001 – 1 050 000 36 000 + 27% of the amount over 700 000
1 050 001 and above 130 500 + 36% of the amount over 1 050 000

Tax on Trusts for 2017

Tax on trusts is now 45%  making the effective rate 36% for 2017.

CGT 20172018
Effective Capital Gains Tax Rate on Trusts 36.0% 32.8%

For British expats in South Africa and South Africans who have worked in London, our top recommendation is to move your pension to a QROPS in Hong Kong for tax, investment and currency purposes, but each circumstance is unique. Please contact us for more information.

Click here to the read about the latest changes to tax in South Africa and how it affects locals and expats resident in South Africa.

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.

South Africa is a rich nation of culture, history, sport, beaches and wildlife.

If you are unsure where you want to move to in retirement in South Africa, look at some of these guides to Joburg (Johannesburg),Capetown, Port Elizabeth or elsewhere in South Africa, we can help you with your pension and retirement choices.

Here is a list of the safest places to live in South Africa in retirement.

Here is a list of the best retirement villages in South Africa.

For 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. You can also hold the investments of your choice as long as they are listed on a major stock exchange.

Furthermore, upon death your loved ones would receive the whole pot as a lump sum cash payout. Under UK rules, they could face a 45% lump sum tax charge upon death as well as up to 45% income tax.

What is a QROPS South Africa?

A Qualifying Recognized Overseas Pension Scheme (QROPS South Africa) allows your UK pension to be transferred offshore, often for tax, flexible pension, currency and investment purposes. Effectively, you will no longer pay UK tax on your pension whilst you are no longer a UK tax resident and you can receive a higher lump sum and higher annual income as well as lower taxes in certain circumstances as long as you have already been offshore for 5 years.

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 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, as well as local tax rules in your country of residence. We will explore these retirement options now.

retire in south africa

Transferring a UK Pension to Hong Kong for a Resident in South Africa

The Hong Kong ROPS is an ORS (Occupational Retirement Scheme) pension held in Hong Kong with very strong pension regulations. A HK ORS ROPS is an unvested pension trust. It is open to anyone who is employed. As long as you have employment in South Africa or from a foreign company or your own company, you can set up a HK ROPS.

A HK ROPS is unvested. This means, British expats can both transfer existing pension schemes into a HK ROPS and also make pension top ups into a ROPS scheme.

Hong Kong ROPS are internationally recognised overseas pension schemes which attract zero income tax on UK tax-relieved funds and attract no tax on non-UK tax relived funds.

Under anti money laundering law (FATF Recommendations, HK regulator notes, etc) HK ORS ROPS are not required to provide details of members (their status as an ORS precludes it, the O being Occupational, and ORS legislation being recognised globally by revenue authorities),and under HK law it is illegal for HK ORS ROPS trustees to declare their ORS Membership.

The HK-South African DTA

Article 17

Pensions

Subject to the provisions of paragraph 2 of Article 18, pensions and other similar remuneration (including a lump sum payment) arising in a Contracting Party and paid to a resident of the other Contracting Party in consideration of past employment and social security pensions shall be taxable only in the first-mentioned Party.

In other words, the taxation rights go to Hong Kong for pensions if you are a tax resident in South Africa. If you transfer a UK pension to HK and are resident in South Africa, here are the benefits:

HK ROPS Benefits for Residents in South Africa

  • Zero tax in the UK as long as you remain tax resident outside the UK
  • If you return to the UK, your death tax will likely be small due to any benefits you have taken whilst being offshore
  • Zero tax in Hong Kong
  • Zero tax in South Africa
  • You can top up your pension scheme
  • You can choose the currency of your pension fund
  • You can choose the mutual funds, ETFs, shares, investment trusts, gold funds or other investments you want to hold
  • 25% tax-free cash lump sum is allowed at age 55, the rest to pay you an annual income
  • 100% of your pension pot is paid out in cash to beneficiaries of your choice on death

Transferring a UK Pension to Malta for a Resident in South Africa

You can transfer a UK Pension Fund to Malta if you are resident of South Africa. This is a popular option if you want full access to all your pension benefits at age 55, but you would face South African taxation on income.

The Malta-South Africa DTA which can be downloaded here, clearly states under Article 18 which was signed with South Africa on 16/05/1997 and has been enforced since 12/11/97.

Article 18 of the Malta-SA DTA

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%.

Furthermore, you avoid UK taxes of up to 45% tax upon death after age 75 and UK income taxes of up to 45%.

Plus, 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, gilt funds 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.

Benefits of Transferring to a Malta ROPS for a Resident in South Africa

  • Zero tax in the UK as long as you remain tax resident outside the UK
  • If you return to the UK, your death tax will likely be small due to any benefits you have taken whilst being offshore
  • Flexible pension access: you can gain access to 100% of your pension as a one off payment, periodic lump sum payments or take a higher annual income, you just pay Maltese income tax on it at source
  • Income tax rates pension income and other retirement benefits are 15% – 35%, lower than the 18% – 40% in South Africa and lower than the 20% – 45% income tax in the UK
  • Zero tax in South Africa
  • You can top up your pension scheme
  • You can choose the currency of your pension
  • You can choose the mutual funds, ETFs, gold funds or other investments you want to hold
  • 25% tax free cash lump sum allowed, the rest to pay you an annual income
  • 100% of your pension pot goes to the beneficiaries of your choice on death

Transferring a UK Pension to New Zealand for a Resident in South Africa

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.

QROPS / ROPS are covered under pension and annuities under article 17 of the NZ-SA DTA.

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 45% (2014).

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 or your investments are pooled. You cannot self direct your pension funds as you can under a Malta or Hong Kong pension scheme. You wouldn’t be able to buy whatever you liked. In this way, it is much more restrictive than the Malta or HK QROPS portfolio, but if safety and estate planning with no IHT and a simple set up is what you are looking for, then a NZ QROPS would fit the bill.

Benefits of a NZ ROPS for Residents in South Africa

  • Zero tax in the UK as long as you remain tax resident outside the UK
  • If you return to the UK, your death tax will likely be small due to any benefits you have taken whilst being offshore
  • Zero income tax in New Zealand
  • Pay only South African income tax of 18% – 40% which may be less than the UK. If this is just an inheritance planning tool, no income is distributed and hence no tax
  • As an inheritance planning tool, a NZ ROPS does not need to commence paying benefits at 70, unlike Malta, so your whole pension pot can be passed on to your beneficiaries upon death
  • You can top up your pension scheme
  • Investments are pooled and pension is held in GBP
  • 25% tax free cash lump sum allowed, the rest to pay you an annual income
  • 100% to beneficiaries of your choice on death

However if drawing the largest pension income is your main priority, then you should go with a Malta QROPS, HK ROPS or an Isle of Man QROPS.

Transferring a UK pension to the Isle of Man for a Resident in South Africa

The Isle of Man allows a 30% lump sum plus 120% of UK GAD rates in drawdown if taking flexible income. 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. Under new rules in the Autumn Statement 2016, you can only take the 30% tax-free lump sum if you have lived offshore for ten years, otherwise it is only 25%.

If clients opt for an Isle of Man QROPS, they can take a higher pension income, 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 45% lump sum tax upon death after 75 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 annual pension income at retirement.

However, the Isle of Man ROPS also faces a 7.5% death tax. So, a Malta ROPS is preferable to an Isle of Man ROPS is maximum income is what you are aiming for.

QROPS South Africa Summary

So, there are a range of choices if you are a British expat in South Africa or a South African returnee 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 at retirement, 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 more information and a free pension transfer analysis, please contact us.

QROPS South Africa article written by QROPS Specialists.

QROPS South Africa | UK Pension Transfers to South Africa 2017/18 by

2 Comments

  • Hello,

    I am a South African citizen with UK passport living in London. After being here for 5 years, we wish to return home and was wondering whether its possible to transfer our NI State Pension to South Africa? – we both have pensions back home. Would you mind giving us some advise here on whether this is possible and how we could go about doing so if that is the case?

    Thanks,
    Dale

    • Hi Dale,

      You cannot transfer your UK state pension overseas. But, you can draw it in the UK. If you have a UK private pension, you can transfer that. If you do have a private pension, please let me know.

      Best regards,

      Richard

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