Tax free lump sum pensions

[royce]

Since 6 April 2006 recipients of UK occupational pensions have been given the opportunity to receive up to 25% of their pension's value as a tax free lump sum in exchange for taking a smaller monthly pension.

Does anyone know if Australia would tax such lump sums (given the recipient had resided in Australia for more than six months)?

[Quoll]

Originally Posted by royce

Since 6 April 2006 recipients of UK occupational pensions have been given the opportunity to receive up to 25% of their pension's value as a tax free lump sum in exchange for taking a smaller monthly pension.

Does anyone know if Australia would tax such lump sums (given the recipient had resided in Australia for more than six months)?

I have absolutely no idea! However, you are also entitled to a lump sum tax free of about $130K on an Aussie pension so you would hope that there is some discrimination about pension lump sums from a UK source. I have a feeling that that my have been increased for over 60s in the last budget because there were all sorts of super changes for the over 60s last year - someone else is bound to know.

[Pinhead]

Lump sums, capital gains & income from annuities from UK money purchase pensions are all taxable in Oz. I would have thought the lump sum payment and income from a defined benefit UK pension would also be taxable.
Unfortunately Oz doesn't give the same tax status to UK pensions as it's own.

[The Picketts]

I have just transferred my UK private pension 'pot'. If I had left it in the UK I could have taken 25% as a tax-free lump sum and the rest would have gone into an annuity based on current interest rates (poor everywhere really). However, by transferring the whole lump to an approved Australian Superannuation scheme - as long as I don't touch the capital for 5 years ('cos of UK tax rules) - I can draw the interest earned as income. Once the 5 years are up it is mine to do as I wish - keep it invested and earn interest, draw down on the capital as required. Even though exchange rates are terrible at the moment I just wanted the whole 'pot' to remain mine and not be 'lost' in the British annuity system. The 6-month rule means that after this period tax would be due on any increase in your capital which in the current climate wouldn't be huge amounts anyway.

Cheryl

[BRISSYBOUND]

Do you mind if I ask,are you retired or are you just moving your pension you're not paying into in UK anymore?Only asking as we've got money in pensions and if we can get to it after five years it could make big difference to our plans.Thanks Fred

[Liam]

Hi

Using phone to write this answer so will just point you to a document on our website that explains the UK and Australian Pension systems and pros and cons of moving etc

Genesys Wealth Advisers

Happy to answer questions once back in the office.

regards

Liam

[royce]

I've visited your excellent site Liam but I cannot see any reference to whether or not the 25% tax free lump sum being offered by UK occupational (defined benefit) pension plans is taxable here in Australia.

[The Picketts]

Originally Posted by BRISSYBOUND

Do you mind if I ask,are you retired or are you just moving your pension you're not paying into in UK anymore?Only asking as we've got money in pensions and if we can get to it after five years it could make big difference to our plans.Thanks Fred

Yes, I reached retirement age (60) last August and retired to WA in September last year so was then able to transfer my private pension pot (with 4 different schemes). My UK state pension is paid to my UK account (Nationwide) which I can get at the 'hole in the wall' when I need it at no admin costs and my very small NHS pension is UK taxed and also paid into my Nationwide account. We are here on a retirement visa with is a temporary one and we will never be able to be permanent residents (unfortunately).

All my 4 private pension schemes were frozen years ago as they were from previous employers and it wasn't until I retired and needed to make the decision to take 25% tax free plus an annuity that I was able to transfer the whole lot to Oz. There is an expert here on PIO that can advise regarding tax rules etc. Perhaps you can try an search the threads..

Regards, Cheryl

[Liam]

Originally Posted by royce

I've visited your excellent site Liam but I cannot see any reference to whether or not the 25% tax free lump sum being offered by UK occupational (defined benefit) pension plans is taxable here in Australia.

The key factor is whether or not you remain a UK resident. If you do, then all subsequent transactions must be reported to the UK authorities .This means, for example, if you cash out the benefit, the first 25 per cent of the benefit would be tax free with the balance incurring the 40 per cent UPC tax. In some cases, a further surcharge of 15 per cent can apply.

Now as soon as you become an Premanent Australian Resident you are taxed on your Worldwide Income. In this case you would be taxed on that 25% lump sum at your marginal tax rate over here...so that means some serious tax planning needed.

We would recommend you look at the option of rolling your fund over to a QROPS scheme over here as if you leave your funds (over $50K) in the UK then strictly speaking you must get a pay-out figure each year and report the growth in the FUND under the FIF rules as income in your Aussie Tax Return and pay tax on this growth even though the funds are still locked in the UK.

You should get personal advice on your options to make sure you know the exact outcomes of leaving or transferring your funds.

People often think they can leave pension funds, bank accounts, savings plans in the UK and not report the earnings here. With the increased cooperation of the 2 governments and use of computer programmes to match details you have a good chance of being caught and audited.....and 5 years from now do you want to be faced with a large "catch-up" bill + 14.5% intrerest charge from the ATO.

Hope this helps.

Liam

[BRISSYBOUND]

Originally Posted by The Picketts

Yes, I reached retirement age (60) last August and retired to WA in September last year so was then able to transfer my private pension pot (with 4 different schemes). My UK state pension is paid to my UK account (Nationwide) which I can get at the 'hole in the wall' when I need it at no admin costs and my very small NHS pension is UK taxed and also paid into my Nationwide account. We are here on a retirement visa with is a temporary one and we will never be able to be permanent residents (unfortunately).

All my 4 private pension schemes were frozen years ago as they were from previous employers and it wasn't until I retired and needed to make the decision to take 25% tax free plus an annuity that I was able to transfer the whole lot to Oz. There is an expert here on PIO that can advise regarding tax rules etc. Perhaps you can try an search the threads..

Regards, Cheryl

Thanks Cherly,well it looks like I'm not getting the big boat,I will have a search for that info.It's a shame you can't a permanent visa,but temporary out there has got to be better than here.Cheers Fred