QROPS Hong Kong – UK Pension Transfers to Hong Kong
Many Brits move to Hong Kong to work in the financial services sector, however Britons never made up more than a small portion of the population in Hong Kong, despite Hong Kong having been under British rule for more than 150 years.
When moving to Hong Kong to take your new job, you must consider what to do with your financial affairs in the UK. If you are moving abroad permanently, you may want to think about selling your house in the UK, changing and converting some of your currency into Hong Kong Dollars as well as moving your UK pension out of the UK tax system.
A QROPS allows you to move your UK pension abroad in order to reduce your tax bill and you can avoid paying tax in the UK altogether.
There are at least 40,000 Brits in Hong Kong. On top of that, you have British born Hong Kongers and Hong Kongers who have full British passports. All of these Brits and even Hong Kongers who have worked for a length of time in the UK can apply to transfer their pensions out of the UK tax net.
Transferring a UK Pension to Hong Kong and Alternatives
You can transfer your pension to Hong Kong. There are a few schemes which allow it, but many are expensive or restrictive with investments. The preferred destination for Brits moving to Hong Kong is to move your pension to Gibraltar or leaving it in the UK. We will take a look at both options.
You can either keep your pension in GBP, move to US Dollars or move to Hong Kong Dollars.
As you can see the HKD-GBP has been range bound between 11.8 and 13.2 HKD to the Pound. It currently stands at around 12 HKD to GBP in 2015.
The Hong Kong Dollar however, has been pegged to the US Dollar for the last 10 years. Even though it has come under some pressure lately, read Hong Kong defends currency peg.
It currently stands at around HK$7.75 to 1 US Dollar for the end of 2014.
Hong Kong pegged its currency to the U.S. dollar in 1983 when negotiations between China and the U.K. over the city’s return to Chinese rule spurred capital outflows. In 2005, policy makers committed to limiting the currency’s decline to HK$7.85 per dollar and capping gains at HK$7.75.
We highly recommend transferring your pension into US Dollars if you want to live and work in Hong Kong. There are also a lot more mutual fund and ETF options available in USD rather than GBP.
If you are never returning to live in the UK, we recommend transferring your pension to US Dollars to avoid exchange rate fluctuations. If you intend to return to the UK at a later date however, we suggest to keep your pension in GBP.
UK Pension Vs QROPS for Hong Kong Residents
Fortunately, the UK has a Double Taxation Treaty with Hong Kong which means a UK pension is taxed in Hong Kong only. That’s the good news. Here is the bad:
- You will get taxed at your largest rate of income tax on anything you take out
- There is a tax on death
- You are prone to any future increases in tax or any future regulation which could lock your tax into the UK
In 2015, the highest income tax rate is 45% and the highest tax rate on death is 45%. The higher your pension pot, the more tax there will be. Those with smaller pots will likely pay 20% income tax. A move offshore helps to avoid those taxes.
Moving Your Pension to Gibraltar as a HK Resident
We recommend moving your UK pension to Gibraltar as a Hong Kong resident.
Gibraltar is also an Overseas British Territory with a sound financial services industry and even a compensation scheme should your company dissolve. As an extra protection, your monies will be segregated and held offshore in another scheme with extra deposit protection.
Hong Kong Providers List
We also have a list of providers in Hong Kong, but HK QROPS have faced a lot of scrutiny in the past and some were closed down. There is one company that we can recommend if you email us, but the charges tend to be higher than Gibraltar which gives you more freedom, particularly if you ever decide to retire outside of Hong Kong.
- You avoid all UK taxes and you can pass 100% of your pension pot on tax-free on death
- You pay only 2.5% income tax in Gibraltar
- You can move your pension to HK Dollars, US Dollars or keep it in GBP
- You can take a higher lump sum than the UK
- Your pension is paid into your Hong Kong bank account with no tax in HK
Why not Malta?
Malta is also a very popular destination for many expats in Europe and other parts of the world, but we consider it inappropriate for Hong Kong.
Why? Well, it is true that Hong Kong and Malta had a Double Taxation Agreement, but if you drill down to the narrative, you will find that it is actually taxable in Malta not Hong Kong, which means that your pension will be much more heavily taxed. In fact, the income tax rate in Malta goes up to 35% which isn’t that far off the UK. The flat rate of tax of 2.5% in Gibraltar is much more friendly.
What is the Tax in Hong Kong on a Gibraltar QROPS?
Pension income attributable to service outside Hong Kong is specifically excluded from the charge to Salaries Tax. So, when your Gibraltar QROPS is remitted back into HK, you do not need to pay Hong Kong taxes on it.
You will only pay salaries tax on all income arising in or derived from Hong Kong from an office, employment or (Hong Kong) pension. So, your QROPS is OK. It falls outside the realm of HK taxation. You would just pay 2.5% flat-rate tax on income which would be deducted in Gibraltar and you would avoid all tax charges upon death.
Gibraltar QROPS is the Answer for HK Residents
Whilst each case is unique, if you want a blanket answer, in general a Gibraltar QROPS could be a good tax-efficient solution for your pension.
By transferring to a Gibraltar QROPS for non-UK residents, this alleviates UK income tax on any income payments with only a 2.5% flat-rate income tax due on such payments in Gibraltar which is deducted automatically at source and with no tax payable in Hong Kong, even if remitted. We find that at the moment, this is the best all-round solution for Brits in Hong Kong or Hong Kong returnees looking to move their pension offshore.
It provides further protection death charge in the UK if you are offshore for at least 5 years. Even if you go back to the UK, a QROPS can help alleviate or sometimes even get rid of any IHT payments on your pension even if you return to the UK in later years.
What Happens to My QROPS if I Leave Hong Kong
Your QROPS is simply an offshore pension scheme and will continue to pay your pension into a bank account of your choice no matter where you decide to retire. The only thing that may change would be the tax perspective. We have already mentioned that if you moved back to the UK, you still may be able to reduce your IHT bill or you could also transfer back to a UK SIPP to reduce charges. There are other options to transfer of you move to other countries, so this is a flexible international pension which is great for tax planning if you are thinking of moving overseas to work in Hong Kong.