Working in Taiwan? Transfer Your UK Pension Overseas to Reduce Your Tax Bill
The new pension flexibility which came into effect in 2015 have made the decisions about moving a pension overseas from the UK for British residents in Taiwan and Taiwanese expats returning home that bit more difficult to navigate.
Here we will lay out some of the best options for your pension from a tax planning perspective.
There are many jobs in Taiwan for expats such as in IT, teaching, healthcare, Mandarin Chinese translators, engineering and management jobs.
If you are considering moving to work in Taiwan, you need to think about what to do with your UK property, your cash in the bank and what to do with any existing pension schemes you hold.
If you are a British expat working in Taiwan or you are from Taiwan and have worked in the UK, you can transfer your pension abroad to avoid UK taxes and consolidate all your pensions into one easily manageable place.
If you are considering working in Taiwan click here for some tips for expats living in Taiwan.
For British expats who move to Taiwan, you need to consider whether to leave your pension in the UK or transfer it to another destination which may be more advantageous for tax and investment purposes.
“There are no QROPS in Taiwan, but you can move your pension to Gibraltar or NZ.”
A good place to start would be to ask who has a Double Taxation Agreement with Taiwan?
Popular choices for overseas pension transfers include a Gibraltar QROPS and a Malta QROPS. Malta has 67 DTA’s, but does not have a double taxation agreement with Taiwan. Gibraltar QROPS does not have a DTA with Taiwan, so would mean paying an extra 2.5% income tax on top of Taiwanese income taxes.
“However, both New Zealand and the UK have a Double Taxation Agreement with Taiwan.”
The UK and Taiwan entered into a Double Taxation Agreement on 8th April 2002 and this entered into force on 23rd December 2002.
Article 18 covers pensions and annuities treatment. As you can see in the picture below, existing UK pensions would be taxed only in the territory where you are resident.
So, you need to ask yourself a couple of questions. Am I resident in Taiwan and am I going to retire in Taiwan or elsewhere in the world?
(1) If you are going to retire outside of Taiwan, a Gibraltar QROPS or New Zealand QROPS might be a smart choice for inheritance planning for larger pensions or for smaller pensions, a UK SIPP for pensioners under 75 who aren’t worried about any future tax rises in UK law or the death tax issue.
(2) If retiring in Taiwan, a UK SIPP means paying only Taiwan income taxes, but you still face a tax on death of 40% if the whole pot is taken as cash after 75 years old. If you want a conservative strategy, an NZ QROPS will avoid all UK income taxes and tax on death.
Each pension saver’s circumstances are different. You need to contact a QROPS specialist to discover which option will best suit you.
The next question you then need to ask yourself is should I leave my pension in GBP or transfer to an alternative currency such as USD or EUR.
What is the Currency of Taiwan?
The New Taiwan Dollar (TWD) has been around since 1949. Over a long horizon, we believe the array of better financial instruments in the States make the US Dollar an excellent long term hedge compared to keeping your pension in Pounds.
Over the next 20 years, maybe hedging to a basket of currencies such as the USD, the Remnimbi, the Yen and the Pound may be a strategy to develop. The exchange rate compared to the United States Dollar has varied from less than ten to one in the mid-1950’s, more than forty to one in the 1960’s, and about twenty-five to one in 1992. The exchange rate as of December 2014 is 31.61 to one.
In the last year, you can see in the chart below how the Taiwanese Dollar had fallen off against the strong US Dollar.
Advice for British Residents Living in Taiwan
In conclusion, it is best to ask a QROPS adviser for a full pension review and establish whether it is best to leave your pension where it is, move it to a SIPP or a QROPS in NZ (which has a DTA with Taiwan) or Gibraltar.
QROPS rules for Brits living in Taiwan are always fixed to the year of transfer. So, if taxes increase on QROPS in the future, that will not affect your tax position at source. With massive UK government debt, the UK government is under pressure to close tax loopholes. At the moment, a QROPS avoids UK tax on income and in death if you remain abroad. Whether this persists in the future or not, we can’t know.