Taxation

Tax on Transfers

Generally there is no tax payable on pension lump sum transfers if:

• the pension transfer is completed within 6 months of the individual becoming an Australian Resident
• the pension is transferred into a ‘Qualifying Recognised Overseas Pension Scheme’ (QROPS)
• the transfer value is under the non-concessional caps imposed by Australian superannuation law

Transferring a pension can take 3-4 months causing the transfer to be completed after the 6 month window. In this case, consistent with the Australian Foreign Investment Fund (FIF) rules, tax will be payable on any increase in the fund from the day you became an Australian resident to the day the fund was transferred.

E.g. you became a resident of Australia on the 1st of July 2004 and at that time the transfer value of your UK Pension was $50,000. The fund was transferred on the 10th of January 2005 (over 6 months) and the transfer value was $54,000. You will be taxed on the $4,000 increase.

This growth will either be taxed at your marginal tax rate, or at the concessional rate of 15% ($600 in this case). Depending on your personal tax circumstances, either option could be suitable. To qualify for the 15% concessional tax rate the following conditions must be met

•  you must elect (which we’ll do for you) to have the tax liability paid by the Australian Superannuation Fund
•  your transfer value must represent your entire benefits from your UK pension fund
•  your pension must be transferred directly into the receiving QROPS

If the fund is not transferred into a QROPS, ‘Her Majesty’s Revenue and Customs’ (HMRC) will apply a 40% tax on the transfer value and you will also be personally required to pay an additional 15% if the transfer value is greater than 25% of all your UK Pension benefits.

5 Year Non-UK Residency Rule

Withdrawals from a QROPS before being non-resident of the UK for 5 complete tax years will be classed as an unauthorised payment. Unauthorised payments attract a 40% tax charge in the UK and if your unauthorised payment is over 25% of the balance there is an additional 15% surcharge. In this circumstance you are required to complete a UK self-assessment return by 31 January after the end of the UK tax year in which the unauthorised payment is made.

Within those 5 years, if you have lived in the UK for 183 days or more in one tax year, or 90 days averaged over 4 years, HMRC will have deemed you to be a UK tax resident for that period.

Tax at Retirement

If you leave your pension in the UK …

In the UK pension environment contributions to your pension fund are generally tax free. When you retire and start receiving pension payments (via an annuity), you are taxed at your UK marginal tax rate. If you are an Austalian tax resident at retirement you will be taxed at your Australian marginal tax rate. In the event of death, any benefits paid to either your spouse or a dependant will be taxed at their Australian marginal tax rate.

If you Transfer your Pension from the UK to Australia …

You can withdraw your Australian superannuation tax free when you reach the age of 60. This includes any UK pension monies transferred into your Australian superannuation scheme. If a condition of release is met, you may be able to access tax free superannuation monies before you reach the age of 60.