QROPS Philippines | Transferring Your UK Pension to the Philippines
You can now transfer a UK pension to Hong Kong if you are tax resident in the Philippines. Your pension would grow tax-free, there would be no tax on death and no tax on income in either HK or the Philippines. Your pension can be held in the currency of your choice and paid directly into your bank account in the Philippines.
The Philippines has traditionally been the haunt of the Americans and the Japanese, but it is becoming more popular to Brits who wish to retire in the Philippines. A swathe of blue skies, white sand beaches and affordable living makes the Philippines a very attractive retirement destination.
In fact, as more Brits are moving to live there, the UK government has released a brochure and guide to living in the Philippines.
It has many tips such as getting your health insurance set up, visa trips and property disputes, but very little in the way of solid financial information or pension guidance advice for British expats in the Philippines.
The Philippines has a Double Taxation Agreement with the UK
The Philippines-UK DTA is great news. For British expats moving to Thailand for example, their UK state pensions are frozen. However, if you move to the Philippines, your state pension will continue to increase in line with inflation and can be paid directly into your Filipino bank account.
However, your UK pension still faces up to 45% tax on death after age 75.
The Currency of the Philippines is the Pesos
Your Pounds will get you far in the Philippines, but seeing as their economy is closely tied to the US, it makes sense to hold your pension in US Dollars. This is because the Philippine government own a lot of US treasury bills.
The Pesos used to be pegged to the US Dollar at 2 Pesos to the Dollar in the 1950’s, but that was abolished in 1955. It has gone through several devaluations since including the Asian financial crisis.
There are now around only 69 Pesos to the Pound as it has fallen from 70 since Brexit and 49 Pesos to the US Dollar. You can see in the chart above that the Pesos has been falling against the US Dollar in general for years, but it is now levelling off and has stabilized against the Dollar for the last couple of years. However, when the Federal Reserve Bank in the USA start to increase interest rates, the Peso will likely weaken, so we recommend holding US Dollars which will likely strengthen against the Philippine Peso.
If you are permanently moving to the Philippines, we recommend keeping your currency in US dollars which is less volatile and moves up and down less against the Pesos than the pound. This should make pension income planning more stable for you.
Please contact us about currency transfers from GBP to PHP and how to get the best exchange rate.
QROPS in the Philippines
There are no QROPS in the Philippines. You can move to a QROPS in HK, NZ, Gibraltar, the Isle of Man or Malta and have your retirement income paid into a bank account in the Philippines. The tax situation is different for each jurisdiction and we will go through that in detail below.
We suggest moving a UK pension to a QROPS in Hong Kong. A QROPS in Hong Kong has zero income for a tax resident of the Philippines. A QROPS in The Philippines attracts no income tax in the Philippines as the Philippines only taxes non-resident aliens on income derived outside of the Philippines (see more below).
Should I Keep My Pension in the UK or Transfer to a QROPS When Moving to the Philippines?
Option 1 – UK Pension Paid into Bank Account in the Philippines or UK
The UK and the Philippines have a DTA as discussed previously. What does this mean for your personal or company pension?
- In the Philippines, your UK pension is taxed ONLY in the Philippines not in the UK
- Furthermore, your UK pension is not subject to income tax in the Philippines under their domestic law as it stands. That does not mean they won’t start charging in the future
- You would pay the UK tax on death which is up to 45% after age 75
Under Philippines tax law, social security benefits, retirement gratuities, pensions and similar benefits received from foreign government agencies and other institutions whether private or public, by resident or non-resident citizens of the Philippines or aliens who reside permanently in the Philippines, are excluded from gross income.
Foreign pension income received by resident aliens and non-resident aliens are not subject to income tax in the Philippines. This has been confirmed by the Philippine Bureau of Internal Revenue (BIR) in 2010. Whether this will change in the future is unknown at present.
So, a UK pension would avoid tax on income, however it cannot avoid the tax on death which is up to 45% in the UK after age 75.
You would only get taxed on income derived in the Philippines at a rate of 5% – 32%. You would NOT get taxed on pension income from abroad.
Income Tax Rate in the Philippines
- Income tax is between 0% and 32%. Please see the income tax rate table for the Philippines below.
- Please note that a QROPS in Hong Kong and New Zealand have a zero tax rate on your retirement income in the Philippines
- However, a QROPS in Malta, Gibraltar and the Isle of Man would attract extra tax of between 2.5% and 35%.
|Taxable Income (PHP)||Income Tax Rate 2016/17|
|0 - 10,000||5%|
|10,000 - 30,000||10%|
|30,000 - 70,000||15%|
|70,000 - 140,000||20%|
|140,000 - 250,00||25%|
|250,00 - 500,000||30%|
Option 2 – Hong Kong QROPS Paid into a Bank Account in the Philippines at Retirement
QROPS Hong Kong Benefits for Residents in the Philippines
- No income tax in Hong Kong
- No capital gains tax in Hong Kong
- No dividends tax in Hong Kong
- No death tax in Hong Kong
- No UK tax on death as long as QROPS member does become tax resident in the UK
- No UK income tax as long as QROPS member remains tax resident outside the UK
- No tax in The Philippines on your existing pension as an expat due to resident alien law
- So, no tax on your QROPS pension in the UK, HK or The Philippines as long as you remain tax resident in The Philippines
- Even if you leave The Philippines to retire elsewhere, you have a choice of 27 countries where you would be no income tax or tax on death on your pension pot
- Choose GBP, EUR or USD as the base currency for your QROPS pension scheme
- Freedom of choice of investments from selected platforms
- Pension can be paid directly to your local bank in The Philippines or into an offshore bank of your choice at retirement
- Retirement benefits can be taken from age 55; no maximum retirement age, so you could use a HK QROPS simply for inheritance tax planning
- Neither a spouse nor any tax authority can seize assets of the QROPS pension trust. Your pension pot is not available to any creditor, even in event of bankruptcy
- 25% tax-free lump sum available at 55; the rest of the pension amount transferred must provide an annual income for life
- After the transfer to a QROPS in Hong Kong, you can continue to make additional pension contributions or top ups to your QROPS from anywhere worldwide
- Maximum amount allowed to be transferred to a QROPS in HK from a UK Pension scheme is 1,000,000 GBP for 2016/17
- Hong Kong has Double Taxation Agreements (DTAs) enforced with 32 countries. 27 of these countries assign Hong Kong the right to tax Hong Kong-sourced pension income; this means if you move to retire to another country, it may be tax advantageous and you pay no tax on income; at worst it is tax neutral and you just pay income tax in your country of residence at retirement
- Hong Kong is an OECD country which is white listed and has tight regulations administered by the MPFA in HK.
The 27 countries listed below have agreed that they will not tax Hong Kong pension income paid to their residents:
The Philippines, Belgium, Brunei, Canada, Czech, France, Guernsey, Hungary, Indonesia, Ireland, Jersey, Korea, Kuwait, Lichtenstein, Luxembourg, Malaysia, Malta, Mexico, Netherlands, Peoples Republic of China, Qatar, Republic of South Africa, Switzerland, Thailand, UAE and Vietnam.
Who is Eligible for a QROPS in Hong Kong?
- British expats in the Philippines
- Filipinos holding a UK pension scheme (UK personal pension, SIPP, SSAS, final salary scheme, DB, DC scheme)
- Anyone holding a UK pension scheme, although UK state pensions cannot be transferred nor final salary pension schemes which are already “in payment”
Tax on a QROPS in the Philippines
- A QROPS in Malta, Gibraltar, New Zealand and Hong Kong avoid tax on death
- A QROPS in the Isle of Man faces a 7.5% death tax.
- A QROPS in Hong Kong and New Zealand are taxed at zero at source. You also pay no income tax in the Philippines as an expat (non-resident) living there. A Filipino citizen (someone born in the Philippines) may pay local income taxes. You would need to check with a Filipino tax adviser.
Best Advice for British Expats Moving to the Philippines
There are now many low cost options for moving to a QROPS. Whilst a UK pension avoids tax in the Philippines in the UK and the Philippines at the moment, that may change in the future and your pension is also prone to tax upon death. Each year the UK government is clamping down on pension transfers out of the UK.
A QROPS gets you out of the UK and Philippines tax net. This means if you move to another country, you would still have the protection of an offshore pension with a QROPS in a tax-efficient stable destination such as Hong Kong or New Zealand
Here is a link to the Hong Kong Financial Regulatory Authority. Hong Kong is a former British colony with a robust financial regulatory framework.
A Hong Kong QROPS avoids the UK tax upon death and can safeguard your pension monies. It is particularly useful if you ever leave the Philippines and can be used as an offshore pension scheme wherever you go in the world. If you ever return to the UK, if you have been offshore for many years and drawing your pension, you can even reduce the death tax in the UK due to time spent abroad.