International Pension Planning for South African Expats
South African expats who are working in London or elsewhere in the world can set up an international pension plan to avoid taxes back home in South Africa. They can avoid donations tax, Capital Gains Tax (CGT) and Inheritance Tax (IHT) with smart international pension planning.
For South African expats who have paid into a UK pension plan, they can also move their UK pensions offshore to reduce taxation if they are retiring outside of the UK at a later date. They can avoid the UK tax upon death and any tax on growth.
South Africans used to be able to transfer a UK pension to a QROPS in Hong Kong and avoid tax on income, growth and death. However, the UK Finance Bill 2017 changed all that. Now, for residents who live outside of Hong Kong and outside the UK, there is a 25% exit tax. You used to be able to just transfer to Hong Kong and live in South Africa, however, HMRC want to stop these types of tax reducing pension transfers, so if you don’t live in Hong Kong, then you pay a 25% exit tax. However, this may still be less than the tax in South Africa which now taxes personal income at up to 45%.
So, for South Africans with large UK pension pots, a choice may be to transfer your UK pension to Hong Kong, pay the 25% exit tax charge on transfer. Then, when you draw your retirement income, there will be zero tax on income, growth and death in South Africa under current SA tax rules thanks to Article 17 of the SA-HK Double Taxation Agreement (DTA).
Hong Kong International Retirement Plan for South African Expats
A Hong Kong Occupational Retirement Scheme (HK ORS) can protect a South African expat from tax in South Africa at retirement as long as those funds have been built up by South Africans whilst they are living abroad.
A Hong Kong ORS allows a 25% tax-free lump sum at age 55; the rest must pay an annual pension income for life. You can hold most shares, mutual funds, unit trusts, cash, bonds, etc. Thanks to the Hong Kong-South African Double Tax Agreement, a HK ORS is taxed only in Hong Kong. This is covered under Article 17. A HK ORS attracts zero tax on income, growth or death and there would be no tax in South Africa.
How can a HK ORS be used to benefit a South African expat?
Under new SARS rules, a South African expat receiving an income in Dubai will no longer be able to receive it tax-free. You can read more here in this article. However, if instead of receiving an income, a South African has part of his income paid into a Hong Kong ORS pension scheme, this money would then no longer be taxed. There would be no tax on income in retirement in South Africa.
Guernsey International Retirement Plan for South African Expats
Sovereign’s Conservo International Retirement Plan is proving extremely popular in South Africa and with returning South African expats across the globe.
The Conservo is a Guernsey-based 40EE International Pension Plan (IPP), which offers significant tax advantages for South Africa-based retirees.
The Benefits of the International Pension Plan for South African Expats
- Can access at 50 years old
- Avoids South African Donations Tax
- Avoids South African Estate Tax
- Can mitigate Capital Gains Tax in S.A.
Contributions to Conservo usually fall outside the scope of South African Donations Tax.
Once invested, the underlying assets will generally grow tax free and without source taxation in Guernsey. Retirement benefits may be accessed from age 50 and the member may elect whether to receive: a lump sum; an income stream; or a combination of both.
Capital paid into the plan will be returned to the member without any tax liability in South Africa. With appropriate structuring the plan may also mitigate South African Capital Gains Tax (CGT) liabilities on investment growth.
On death, the Conservo’s assets will usually be exempt from South African Estate Duty. There is also the option for assets to be passed into a new trust for surviving beneficiaries. The Conservo offers unrestricted investment options and the facility to make regular monthly contributions. Existing assets may be transferred to the plan in lieu of cash contributions.
The plan offers a very competitive charging structure, which starts at £750 to establish and £900 as an annual administration fee. (2014 prices)
QROPS for South Africans Who Have Worked in the UK
South Africans who have worked in the UK and built up a substantial pension can transfer their UK pensions to a QROPS to avoid UK taxes.
- Avoid up to 45% tax upon death
- Avoid UK income taxes of up to 45%
- Transfer your pension to Rand or keep in GBP or move to EUR, USD, etc.
- Choose from the top hedge fund managers in the world
- Pass 100% of your pension on to whomever you like upon death
- Make estate planning much easier
- Target higher returns through effective financial planning
- As of March 2017, any QROPS based outside of South Africa face a 25% exit charge
Please email us for more information and ask the QROPS Specialists a question.South African Expats - International Pension Planning & QROPS by Richard Malpass