Taxation Issues – UK Pension Transfers to NZ
From 1 April 2008 the growth and income in Superannuation funds which are Portfolio Investment Entity (PIE) funds are taxed at a maximum of 30%, or 19.5% if this is your marginal tax rate. All benefits/withdrawals are tax free.
Generally there is no tax payable when a UK pension fund is transferred into a New Zealand (NZ) HRMC, QROPS approved superannuation fund – refer to Foreign Investment Fund (FIF) exemptions below.
If your UK pension fund is employment or self employment related and you only made contributions to it before you became a resident of New Zealand, then you will be exempt from Foreign Investment Fund (FIF) Regulations.
If you acquired an interest in a UK pension fund which was NOT employment or self employment related before you became a resident in New Zealand you will be exempt from the FIF regime for the rest of the income year in which you first become resident, and for the next three income years.
After this exemption period has expired, you are then required to declare your interest in your UK pension fund to the New Zealand Inland Revenue. Income tax will then be levied on any gains the fund makes each year.
There is a possibility that should you leave your pension fund in the UK and at retirement take the Tax Free Cash sum, this may be subject to tax in NZ, even though you have left your funds in the UK. New Zealanders are taxed on their worldwide income.
So the tax advantages to transfer are:
- you simplify your tax calculations
- you remove the tax and exchange rate uncertainties
- you pay no tax on the proceeds (withdrawals) from the New Zealand superannuation plan
UK Pension Simplification Rules 2006 – How they affect your Pension transfer?
On 6 April 2006 the “pension simplification” regulations came into effect in the UK.
Under these rules ever overseas pension fund that wants to accept transfers from the UK must be approved as a “Qualifying Recognised Overseas Pension Scheme” (or QROPS). All QROPS will have to report back to HMRC any payment made to a member in respect of the amount that was transferred from the UK. This will include the date, amount and “nature of the benefit” and the current address of the member.
Note: The HMRC will apply up to 55% tax on the transfer value if the UK pension is transferred to a non QROPS approved fund.
The new regulations state that the earliest retirement age (the earliest age at which funds can be withdrawn) is 55 years. In addition the maximum withdrawal in the first year is limited to 25% of the pension without incurring any tax liability. Anything above this will incur a tax liability of 55%. To be a QROPS reporting of all withdrawals is required to be provided to the UK authorities. Additional contributions and/or investment growth are not subject to the UK tax penalties.
NZ Taxation Rules – Foreign Investment Fund rules exemptions
After 1 April 2006 new migrants and returning New Zealanders who have not been tax-resident for at least ten years, are exempted from tax for four years on foreign income such as dividends, interest, royalties and rental income.
The ten year requirement is designed to ensure that New Zealand residents do not leave the country just to become eligible for the exemption.
The changes are part of the Taxation (Depreciation, Payment Dates Alignment, FBT and Miscellaneous Provisions) Bill.
Next article: Benefits of transferring your UK Pension to New Zealand »
