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Hong Kong Phooey: Expats, HMRC and a QROPS Kerfuffle
In recent decades, travel and technology have shrunk the world to what has been described as a ‘global village’.
It’s perhaps not surprising, given Britain’s imperial heritage, to find a considerable number of expats, often living far from home.
According to figures issued by the United Nations some 4.5 million Britons live overseas, with just over a quarter of those resident in Europe.
One further study has estimated that some 15,000 men and women are resident in Hong Kong, two decades after its status changed from that of a British colony to one of China’s two Special Administrative regions (the other being Macau).
Whether working or retired, I imagine that many of those will have been concerned at the news that HMRC has decided to drop Hong Kong as one of the approved areas where it’s possible to invest in a Qualifying Recognised Offshore Pension Scheme or QROPS, for short.
In the UK, of course, people can build up a pension pot in a tax-advantaged manner, provided that they don’t exceed the current lifetime allowance of £1 million.
However, since 2006, individuals who work, live or intend to retire abroad have been able to transfer their pensions to enjoy them in other parts of the globe, as long as they meet HMRC criteria (thereby “qualifying” in the process).
Money transferred from a UK pension into a QROPS by Brits living or working overseas attract no unauthorised payment and scheme sanction charge.
The Revenue only takes its cut when pension recipients return to the UK.
Despite setting up the scheme, it’s fair to say that HMRC has never been entirely happy with it, especially when it comes to those jurisdictions suspected of indulging in so-called ‘pension-busting’, by which QROPS are used solely as a means of ‘dodging’ UK tax liability.
Hong Kong is one of the places to be accused of such behaviour, despite no scheme based there ever being officially cited for breaking the rules.
It should come as no real surprise, therefore, that HMRC has decided to take action.
Indications that HMRC planned to get tough arrived earlier this year when it introduced new rules to narrow the potential for using QROPS merely to dodge the tax incurred by full UK pension status.
Such schemes set up after the 9th March were to be hit with a 25 per cent tax charge when money was transferred into the QROPS unless both it and the individual who hoped to benefit from it were resident in the same country.
Anyone taking cash out of a QROPS within the first five years after it was established were also to be liable for tax.
That move was just one element of a much broader push against tax avoidance which has now seen the European Union follow through on a pledge of November last year to publish a list of those jurisdictions deemed “non-cooperative for tax purposes”.
As well as the 17 states said not to comply with European tax rules or that operate “harmful preferential tax regimes”, a separate “watchlist” of 47 countries which have promised to share more information on their tax affairs has been published. That latter group includes Hong Kong.
Although the EU list has nothing directly to do with HMRC’s attitude to QROPS, it indicates the pressure which countries across the globe are now under to meet and maintain acceptable standards in the campaign against tax avoidance and evasion.
Both it and the latest Revenue QROPS bulletin will probably mean very little for those men and women who have retired full-time to Hong Kong and are presumably already enjoying the rewards of a well-stocked pension pot.
These new initiatives, though, will have a great bearing on those individuals inclined to look to the Far East as a destination both for work and a life after work finishes.
They don’t completely shut down their options overseas, of course. More than one million Brits currently live across Europe and QROPS established in Malta, for instance, will suffice for those residing in any one of the continent’s 28 member states and are entitled to the privileges of EU membership.
Quite what happens after Brexit is not only finally negotiated but takes effect could be another matter, of course….
Enterprise Tax Consultants are experienced in all aspects of the taxation of QROPS, and Qualifying Non-UK Pension Schemes (QNUPS). We have specific expertise outside of the UK registered pension system, and have advised many individuals and professional clients on the use and establishment of such structures.
As QROPS are regulated in the country of establishment, specialist advice is essential for anyone considering this structure. Although not technically registered pension schemes, they may be subject to restrictions and penalty regimes. For instance, a QROPS cannot invest directly or indirectly in residential property without a large tax penalty.
We can also advise for example if a QROPS would benefit if you are currently resident outside of the UK but planning to become an expatriate in the future, or for those approaching the Lifetime Allowance, where exploring the use of a QROPS free of any concern of exceeding the lifetime allowance threshold.
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Contact us for a no-obligation initial conversation about QROPS with one of our chartered tax specialists.