Hong Kong QROPS have had a chequered history, but the latest HM Customs & Revenue nod of approval is a fresh start of a new generation of offshore pensions.
Hong Kong providers have offered Qualifying Recognised Overseas Pension Schemes (QROPS) since the concept was introduced in April 2006.
Some advisers became a little lost along the way, with some over exuberant tax planning that led to a few rapped knuckles from the UK taxman.
Behind the scenes, industry insiders suspected for some time that new providers trying to establish QROPS in Hong Kong were struggling to get the green light from HMRC because of concerns over tax compliance.
Closing a tax loophole
However, two years later, HMRC subsequently pulled approval when a review revealed the QROPS flouted Hong Kong’s own pension rules.
In an unprecedented step at the time, HMRC waived a 55% tax charge on unauthorised pension withdrawals.
In 2012, the UK government acted quickly to slam tight a tax loophole by quickly drafting and imposing a specific law stopping UK residents drawing payments from a Hong Kong QROPS to pay income tax at just 15% income tax. – against a the UK basic rate of 20% or 40%/50% for higher rate taxpayers.
The opportunity came about from loose wording of a new double taxation treaty between Britain and Hong Kong.
Exchequer secretary to the Treasury David Gauke said at the time: “We have become aware that it has been suggested to some individuals that they could take advantage of this loophole.”
HMRC approval of Hong Kong QROPS
Nevertheless, the new breed of HMRC approved Hong Kong QROPS are set to become a popular option with expat retirement savers from Britain or those from elsewhere who have built up pension rights while working in the the UK.
The new HMRC approval puts Hong Kong QROPS at the top of the pile with those offered by other respected financial centres like Malta
QROPS based in Hong Kong offer the same flexible tax and investment options as thousands of others worldwide, but with a local twist. A key factor of Hong Kong QROPS is where the retirement saver lives as the jurisdiction has a host of double taxation treaties that complement rather than compete with another next generation QROPS from Malta.
Hong Kong QROPS are a great option for people residing in countries that do not have a DTA with Malta
So whereas a QROPS saver in Thailand benefits less from a QROPS in Malta, a HK QROPS is ideal as Thailand and Hong Kong have a DTA. You can read more about Malta QROPS here.
Hong Kong QROPS features
QROPS in Hong Kong may pay up to 30% of the transferred in fund as a tax-free lump sum – and that includes the value of any consolidated funds from several small pensions – which can add an extra 5% tax free to the equivalent pay out if the pension was left in Britain.
Meanwhile, pension benefits can be paid in to any bank – including local banks in Hong Kong Dollars.
This cancels the hassle of timing transfers to beat currency exchange rate fluctuations that can devalue pension payments.
Importantly, pension benefits are paid according to Hong Kong pension rules, which means no income tax deducted at source.
Other tax benefits include avoiding a 55% tax charge on any funds remaining in the scheme on the pension investor’s death.
Hong Kong QROPS are also beyond the reach of the UK taxman for inheritance tax.
Who can switch to a Hong Kong QROPS?
HK QROPS also offer better investment options than a standard UK registered pension – introducing a wider range of commodities, currencies and markets that are simply unavailable to UK retirement savers to boost their pensions.
Putting the tax and investment advantages together, a Hong Kong QROPS lets a retirement saver take control of their investments and allows them to make practical decisions about either spending their cash or passing all or part of the fund to family and loved ones.
QROPS eligibility is straightforward – British expats can switch their UK pensions in to a Hong Kong QROPS, as can international workers who lived and worked in the UK but have returned home or left the UK to live elsewhere.
Hong Kong residence is not necessary – the retirement saver can move their UK pension in to a Hong Kong QROPS while moving around whether they intend to live in Hong Kong or in another country, as long as it is not the UK.
This article reviews some of the history and basic facts about QROPS in Hong Kong, however if you are looking to transfer your UK pension to a QROPS you must seek qualified financial advice. A financial adviser will determine whether Hong Kong is the right place for your pension and guide you through the process.
If you would like to be put in touch with a qualified financial adviser, please contact us via the contact form here for a referral.