QROPS Japan – UK Pension Transfers to Japan
If your company decides you need to work in Japan, it makes sense to take the necessary steps to maximize your wealth and protect you from tax. Brits who are moving to work in Japan should think about perhaps moving some of their money from GBP to Yen, they should think about what to do with their house and if they are moving abroad permanently, they should think about moving their pension offshore to a QROPS to minimize taxes.
There are many blogs with tips for living in Japan, but most don’t cover the financial aspect. Both British expats in Japan, British people thinking of working in Japan and even Japanese who have worked in the UK can all move their pensions out of the UK tax net via a QROPS.
There are at least 25,000 Brits living in Japan and many more come here to work as English teachers in Japan as well as British workers in the Japanese travel industry.
Should I Transfer My British Pension to Yen
The currency in Japan is the Yen and it has been falling sharply against the Pound, as you can see in the chart below. At the time of writing, for 2015, I would keep your pension in GBP or USD as the Bank of Japan are doing the biggest money printing experiment ever and there will be downward pressure on the Yen.
The chart above shows the Yen weakening against the Pound over 10 years. Sterling has remained strong against the Japanese Yen (JPY).
The good news is that your Pound or the US Dollar will last longer and you will get more out of it. So, keep your pension in GBP or USD. Now, let’s discuss the tax position.
Tax Planning for Moving to Japan
You should consider moving your UK pension to a QROPS. There are no Qualifying Recognised Overseas Pension Schemes in Japan unfortunately, but there are other countries where you can move your pension to in order to get it out of the UK tax net whilst still having your pension paid into your Japanese bank account.
Leave Pension in the UK Vs QROPS
Move to Japan, but Leave Your Pension in the UK
Luckily Japan and the UK have a Double Taxation Treaty. Under the agreement, your UK pension would be taxed in Japan under Japanese tax provisions. It is a little tricky, but basically:
- You would get taxed in Japan on your UK pension if paid into your Japanese bank account
- The income tax in Japan can be up to 50.84% (2014)
- Inheritance and estate taxes are subject to tax at progressive rates up to 50%. Japanese inheritance tax could apply to foreign pension funds received by residents of Japan.
- This is the case whether you are a permanent resident or non-permanent resident (lived in Japan for less than 5 years)
Transfer UK Pension to a QROPS in Gibraltar
- No UK income tax and no tax on death in the UK
- Only 2.5% flat-rate income tax in Gibraltar, no tax on death in Gibraltar
- No tax in Japan if not remitted to Japan by a non-permanent resident of Japan, or if paid to a non-resident.
- Taxed on income in Japan as a permanent resident
- A Gibraltar QROPS may be helpful for a Brit Moving to Japan, especially if you spend less than 5 years in Japan and intend on retiring outside the UK and outside Japan, e.g. move to Europe or elsewhere in the world later. Other options include exploring a UK SIPP.
For Brits who are moving to Japan for less than 5 years, a QROPS would avoid all UK taxes and Japanese income taxes.
There would just be a tax upon death. If you are living in Japan, but less than 5 years, you could have this pension paid into an offshore bank account to avoid Japanese taxes.
For those who are permanently moving Japan to be with their Japanese wife or husband for example, you would be expected to pay Japanese taxes, even if you move your pension to Gibraltar. Foreign tax credit could be available for the 2.5% income tax you pay in Gibraltar on your pension income, so you would only really be paying Japanese income tax and you would avoid the UK tax on death.
You would avoid the other double taxation issues which may occur with leaving it in the UK.
The best solution is to work in Japan for less than 5 years not remitting your pension there and then retire elsewhere in Asia for the largest tax advantage or move back to the UK or Europe at the end of your 5 year stint. If you retire permanently in Japan you will have to pay Japanese taxes, but a move to a Gibraltar QROPS will get you out of the UK tax net if the UK ever intend to change their taxation system.
A QROPS can still be beneficial if you are out of the UK for a long time and may negate UK IHT or at least reduce it if you return. Each case is unique and will depend on how long you will live in Japan and your ultimate retirement destination. You may chose a QROPS or you may look into moving your pension to a UK SIPP for investment freedom.