Updated: Apr 14, 2020
As of April 2017, there were 23 listed QROP’s in Hong Kong. One delisted straight away and a further 2 delisted in October. All remaining 19 Hong Kong-based QROPS have been delisted by HMRC and are no longer included in the authority’s list of approved schemes.
As is usual, HMRC has given no reason for the deletion of the 19 Hong Kong QROPS, and the firms affected by the decision have made no comment yet regarding their products’ loss of status.
Hong Kong based QROPS have been established in the offshore pensions marketplace since the start of the QROPS scheme in 2006, averaging between 10 and 26 products over the past 11 years. In April this year, 22 schemes were registered, with one deleted during the month and two more taken down in October, again with no explanation from HRMC.
What Does This Mean?
If you have currently retired in China or currently have a QROP in Hong Kong, your pension is still safe and will remain with your current provider. Your QROP provider will inform the HMRC of the value within the pension and charges may be applied.
For expats living in China and planning to transfer their funds to a QROPS, the delisting means they no longer qualify for an exemption and must either pay a 25 per cent transfer tax or switch the fund to a SIPP self-invested personal pension.
By transferring to a SIPP, no tax charged is applied on the transfer such as the same with a QROP. QROP’s are no longer suitable if you are living outside the European Union.
The basics of a QROP
There are a number of countries that permit their resident nationals take 30% tax-free cash, as opposed to 25%, as it stands in the UK. Because HMRC stipulate that a QROPS must provide the same benefits to its members as those entitled to the nationals residing in its country, the QROPS jurisdiction and HMRC allow up to 30% to be drawn as a tax-free lump sum subject to certain requirements.
A QROPS scheme only needs to keep 70% of the original transfer pot as retirement income. This is an important statement. The 70% that must remain in the QROPS is based on the value of the UK scheme on the date of the transfer to the QROPS, not the current value.
This gives an incentive for one to transfer to a QROPS as long as possible before retirement, provided they already have built up a big enough pension fund in a UK scheme to realise the benefits of doing so.
A transfer to a QROPS is a benefit crystallisation event (BCE 8), and the funds will be subject to a lifetime allowance test at that time, regardless of whether you as a member have reached pension age or intend to take an immediate income following the transfer.
The lifetime allowance only has significance in the UK (pre-transfer), and taking retirement benefits from former UK pension funds held in an overseas pension scheme will not trigger a BCE.
This allows a client to use a QROPS to benefit from no maximum lifetime allowance.
Any growth in value of the QROPS above the value of the UK Lifetime Allowance (£1.25m 2014/2015) paid as a pension, will escape the 25% Lifetime Allowance excess tax charge.
This charge would otherwise apply to any pension paid from a UK registered pension scheme to persons who are UK resident or non-resident for less than five years where the value of the pension exceeds the Lifetime Allowance (£1.25m 2014/2015, £1m 2016 onwards).
Inheritance Tax Benefits
When you set up a QROPS, you nominate your beneficiaries which you are entitled to change at any time, so that means you can pass on your wealth to loved ones far easier, faster and less stressful for your family than with you can with a UK pension.
Another benefit to passing on your wealth through a QROPS is the fact that your family and loved ones will completely and legally avoid paying the Inheritance Tax which is levied on UK pension schemes. This can be up to 55% of your pension’s fund value.
Inheritance Tax is calculated on your entire, worldwide assets if you are domiciled British, even when you are resident overseas. If HMRC can establish Britain was the country you regarded as home at the time of your death, your UK pension would be subject to IHT.
If you have a UK pension, these funds will incur an IHT charge of up to 55% when they are left to your beneficiaries. IHT does not apply to QROPS, the money you have worked your entire life for can be passed onto your loved ones free from tax at source.
What is a SIPP (Self Invested Personal Pension)?
• To help save for your retirement in a tax-efficient manner.
• To enable you to transfer benefits in other registered pension schemes such as QROP’s to your SIPP.
• To enable you to make your own investment decisions in conjunction with your Investment Manager or Financial Adviser, and utilise a wide range of types of investments.
• To give you choice over how and when you take your benefits.
• To allow you to take regular or variable income from your fund while remaining invested.
• To provide you with a tax-free lump sum.
• To provide benefits for your dependants and other survivors on your death.
A with a QROP a SIPP can provide you with similar benefits, most SIPP providers will accept your current investment structure that you hold in a QROP to make the transition of moving easier.
For further information on a QROP or SIPP contact us today for a no obligation consultation.