winter1

On 26/09/2021 at 05:43, Ken said:

More difficult perhaps but far from impossible. The UK scheme has always been a welfare benefit paid out of current taxation receipts even though the narrative has portrayed it as an insurance scheme paid out of past NI contributions. If they changed the narrative now there would be some protest of course, but the need to change the narrative so as to tell the truth is easy to justify. Plus most pensioners in Australia have already been out of the UK for more 15 years and so have lost their right to vote - so why would UK politicians be concerned?

Not sure it is paid out of current taxation:  https://en.wikipedia.org/wiki/National_Insurance_Fund

Anybody know if the distinction between deducted and undeducted funds has any relevance to how the UK taxes the withdrawals ?

 

I have asked HMRC and am waiting for an answer but was wondering if someone had already had an answer.

 

Bill

I agree with what Marisa has said above, that is the position as I understand it after calling HMRC several times.

The only concession that is given is that you are taxed on 90% of a regular pension payment I mentioned the other reliefs that are implied in sa 106 but was told this did not apply as it would be an income stream( I was hoping when I posed the original question that someone else had tested this).

However as I am not in the position yet I haven't had to file a tax return to test it. So the option of a purchased life annuity is a possibilty this is also mentioned in the first link as it is regarded as capital and only the interest is taxed. It may be possible to buy one in Australia with higher yields. However as I stated before the exchange rate could vary the payment far more than tax or interest. Therefore bringing it to the UK as a lump sum could actually protect the value of capital if the AUD were to drop even further.

https://online.hmrc.gov.uk/information/help?helpcategory=selfAssessmentFiling1011&affinitygroup=&helpid=PensionsAndOtherBenefits

https://www.gov.uk/government/publications/self-assessment-foreign-sa106

Also the Deeming rules would make no difference if you reached aged pension after this date regardless of when you started drawing a super stream.

Just to clarify I was advised by my super fund that starting an income stream before the 1st Jan this year would not save me from new rules to include it in the aged pension Deeming calculations as you already have to have been old enough to receive the aged pension before the 1st of January.

Unless you know different, if so I would be making representation to my fund for incorrect advice.

I wouldn't even consider that option for myself! The interest rates are lousy in the UK versus the interest we get on my SunSuper account! We have earned a heap of money in Oz since December, literally thousands and I rolled mine into pension before Jan 1st so deeming rules do not apply.

Hi fizzybangs,

It is not for everyone, but is an option to protect a capital amount. I agree the returns in an Australian super fund are superior strictly on a dollar basis but you also have to take into account exchange rates. For example my Aus super has risen in dollar terms but has gone down by around 17% in pound terms since mid 2012 despite adding 20% in dollars in the same time. It is now worth a lot less now than in mid 2012 in pounds. However if the AUD recovers it will be worth more. Also the Deeming rules would make no difference if you reached aged pension after this date regardless of when you started drawing a super stream.

Interesting! I did know you could get credits simply by being resident in the UK but unemployed, although I thought you had to be registered unemployed. For some reason I didn't connect that with the fact that you (and my husband) will have a few years in the UK before reaching retirement age!

 

There is a spouse pension too, as you say - I still can't get my head around that one!

I contacted the DWP by phone and can confirm that I was told that as per current regulations that any time in Australia prior to 28th February 2001 can be counted towards a UK pension and each year increases the amount payable. However the lady could not tell me how many years of UK work years were required for this to kick in. I was told to ring Revenue and Customs as this was under their remit. I will try and do this with my wife very soon as I cannot make an enquiry on her behalf.

I was also informed that they expected that arrangement to continue however as the "New pension" which comes in after 2016 has not yet been passed totally by parliament this could change.

The other thing that is of note from the "New Pension" is their is no spouse pension all pensions from April 2016 will depend on the individuals NI record taking no account of a spouses contribution.

I have just found this on another forum which gives a clue that the years in Australia may well count towards your payment of UK age pension.

http://www.expatforum.com/expats/france-expat-forum-expats-living-france/125698-uk-state-pension-not-fully-payable-france.html

Many thanks for that, now I am confused. My pension forecast says that if I produce evidence of my Australian work record before 2001, I may be able to claim those years "as if I had paid NI contributions for those years". Whereas that example implies that I can use those years to meet the minimum qualifications, but my actual pension will be calculated on actual NI contributions. If that's true, that's a bummer!

I agree it is a bummer if this is indeed the outcome. However I am not sure if the rules for Australia are different with the now defunct agreement. When we asked for a forecast for my wife from the DWP they said this was not possible till she reached age pension age as she had only worked in the UK for 1 year. I got my forecast as I had nearly 30 from age 16 (despite having paid NI since 14 from a part time job).

My wife was led to believe that Australian work years prior to 2001 would add to the pension amount. It is very difficult to find a defintive answer.

Hey Winter,

 

This is intriguing ................. I have never worked in UK ............... but maybe I might find something in future .............. and then my years of working and paying tax in Australia are somehow counted ? Sounds far too good to be true, but would sweeten up paying tax on my Aussie super .

 

Bill

Hi Bill,

I think that Marisawright has answered this quite well the official site of the Director of Work and pensions shows the new rules.

https://www.gov.uk/new-state-pension/living-and-working-overseas

It indicates that a minimum of 10 years NI contributions are required but gives examples of people with only 7 years NI contributions made up allow the ten year entitlement with recipricol agreements. The caveat is that the pension is based on the seven years of NI. I had wrongly made the assumption that you had previosly worked in the UK. However if you are going soon and working you should be able to build up years. the full pension is now based on 35 years of contributions so on the current estimate of the new full pension of around £155 ten years would give around £44 a week.

Am beginning to think I may have over reacted to this issue.

 

In UK you each get 10,000 pounds tax free then the money you earn on top of that is taxed at 20% ?

 

So if you budget to live on 30,000 per year thats 15,000 each

 

So that is tax of 20% on 5000 pounds that is 1,000 pounds tax each.

 

In my overall big picture that is a relatively cheap price to pay for being able to live where I want, and, for us, that means getting away from what has become an annual bushfire worry - we spent approx $1000-$1500 per year for the last few years when we flit to a caravan park on the extreme fire danger days - "Leave and Live" - well worth it for the peace of mind. For the other 10 months of the year our place is a paradise, but it takes a lot of energy that I no longer have to look after it.

 

So maybe everyone could have a look at their own big picture spreadsheet and see if the "TAX !!!! HORROR SHOCK NO WAY WILL I PAY TAX !!!!!!! " reaction is warranted, and are you depriving yourself of something you'd enjoy for the sake of tax minimisation.

 

I know it can become a bit of a passion to minimise tax, but the danger becomes that I spend my retirement minimising tax instead of enjoying myself as much as I possibly can before pegging out with my last 5 cents in the bank, and yes you have to do some planning to achieve that and it does involve attention to taxes.

 

I will always remember one financial planner recommending planning on spending up and enjoying your early retirement before your "Deep old age" - wonderful turn of phrase.

 

Maybe I've got this all wrong ? Are there other implications ie will UK try to make me pay tax on the earnings of my funds rather than on the withdrawals ? We dont have SMSF we are self funded retirees using industry funds to hold our retirement money.

 

Must admit I've gone back to being willing to pay 2000 pounds per year to live in a cooler climate as long as I've understood it properly. In my big picture spreadsheet that cost is offset by other costs I won't have to pay any more. But everyone has their own scenario to model and for some the costs may not balance out.

 

Leaving funds in Aussie super does bring up other issues - ie 20-40 years of the following : currency exchange risks, double the legislative risk with 2 governments involved, transfer costs, management & communication between Britain & Aus. any others ?

 

Will be talking to British tax accountants in May when we go back for holiday, and will post back whatever I learn.

 

Bill

Bill,

Certainly agree with your sentiments re not doing it just for tax minimisation.

The original question was to see if there was any concessions on the fact that tax had already been paid in Australia.

Will you be entitled to a UK aged pension at age 65 or your pension age? if so this MAY add another potential £8000ish to the mix each. (remember that time worked in Australia up until July 2001 when the reciprical agreement ended. It could give you an entitlement to the non means tested pension if you have already had a number of years working and paying national insurance in the UK or maybe if you work in the UK till the day you retire. You only get the estimate for this when you reach retirement age. This could be a plus that will give a net gain on the whole deal.

Good luck

Winter

Hi everyone yes excellent responses. I wonder if anyone knows of a financial advisor I could see . I want to go back to Uk next year. I will be 61. I am selling up here and then buying a smaller cheaper house in UK.I am entitled to a small Nhs pension and I think part uk pension ,maybe even a bit of oz pension. I worked 33 years here full time and 12 years in uk. But not sure of best way to manage it all. Any advice or pointers in the right direction would be much appreciated.

many thanks

Pam

Hi Pam,

If you have already reached 60 then as a female you will already be able to claim your UK pension and I am assuming also the NHS pension. I note in another post you were already aware of the reciprocal agreement that ended in 2001.

You may also like to have a look at this link that shows the UK chancellor has announced the intention to allow anyone retiring before 2016 the ability to top up their UK Basic state pension with a one of payment of £700 for £190 per year increase. This is a one off for a short window. http://www.telegraph.co.uk/finance/personalfinance/pensions/10497646/Autumn-Statement-2013-Over-60s-offered-cheap-state-pension-boost.html

I also paid class 2 voluntary contributions for a few years till I reached the 35 year National insurance level for a full pension. not sure what that costs now but it only cost me around £400 in total to get an extra worth around £835 per year in pension at today's rate.

may be worth investigating.

Good luck

Hi,

No I don't think so.There is no question of it being double taxed they would be paid tax just like in other country. The tax might depends upon the specifics of the double taxation treaty for that particular type of income.I believe that a UK pension received by somebody living in Australia, would be taxed in Australia not the UK. Therefore I would have to assume that the opposite applies and in this case you pay tax in UK not Australia. This is just a guess, hopefully someone will confirm shortly.

1. I think the point is here that an Australian Occupational Superannuation scheme has tax deducted when you or your employer contribute.. so any money going in is taxed albeit at 15% on concessional contributions. However if you put any money in from a something like a sale of a house or car then you will be putting money in from funds that have been fully taxed.

2. If you remain in Australia this super fund can pay you an income once you turn 60 totally free of income tax.

3. If you move to the UK then it will be taxed as an income stream at normal rates.

4. If instead of putting that money in super you had put it in the bank then you could draw it down whenever you want without it incurring tax.

5.OK you will have received some concessional tax relief on some of it but will still have paid at least 15% on it and may well have paid 30% on it and then you get taxed again in the UK at at least 20%.

6. If you have paid into a UK pension fund whilst working in the UK you get full Tax relief at your highest rate up to 50% so yes it would be fair to pay tax on this as you have already had your tax relief.

7. There are financial instruments in the UK that recognize you have paid tax on certain investments i.e. Purchased Life Annuities (not to be mixed up with common or garden annuities).

the question I put was to see if anyone knew if there were certain exemptions on Australian Occupational super. If you have an Australian state pension then I would expect to pay tax on it or any other pension for that matter it is just the way that Australian super is taxed. Maybe it would be fairer to tax it at a sliding scale from 5%.

I'm a bit away from retiring but I like to keep abreast of financial matters and the last time I looked at annuities they were not that great. Admittedly it wasn't recently but I cannot imagine they will have improved; if anything they will be poorer. Are you not allowed to retire, take money from Oz super, stick it in a bank account and then transfer it to Uk without the need to put it into a Uk pension pot or take out an annuity? Or am I being too simplistic?

I am aware of that but there are differences between standard annuities and Purchased Life Annuities.

read this link

http://www.investmentsense.co.uk/retirement-centre/thinking-about-retirement/purchase-life-annuities/#

It may also be wise to get proper advice but this could be an option if you want to protect your capital and unlike standard annuities if you haven't drawn all the money in your pot then your estate will get the balance.

Hi Thistle13,

I fully understand how you feel. As I mentioned previously if I decide to leave Oz permanently one of the options would be to draw all the super out after retiring tax free which I believe you can, and take it to the UK and purchase a product in the UK called a "Purchased Life Annuity". This can be drawn down part of the income is recognized as capital and is Tax free only the earnings component is taxed IE interest. The only downside is if you do decide to return to OZ then it becomes taxable in OZ, so you have to be pretty sure the move is permanent.

We looked into this exhaustively and I agree, it's confusing.

 

If you're over 60 and take money from your Australian super fund, it gets special treatment, and is not taxable in Australia - as you know. If you have moved to the UK, any money you draw from your super is classed as income. It gets no special treatment.

 

To quote:

 

"The general rule is that where double taxation agreement is available, the country of the pensioner's residence has taxing right in relation to pensions sourced from another country. For example, a UK resident receives an allocated pension from an Australian fund. No tax is payable by the Australia fund, tax on the pension is payable instead by the pensioner in the UK."

 

http://www.ngssuper.com.au/assets/Downloads/Retiring-Overseas.pdf

Thanks for this information

Thanks to fizzybangs and Thistle13 for the considered responses.

If you were to put £20000 in a building society you would expect to pay tax on the interest but you would not expect to pay tax on the capital in the account.

This is because you have already paid tax on this when you earned it. This is the same principal as Australian Super is taxed when you contribute to it. You cannot choose which tax regime you obey it is done on residence tests etc.

I don't understand the premise "but would get a higher tax free allowance in the UK" is this on contributions or on receipt of income.

This either assumes I would be contributing to a pension in the UK, which I won't or that the tax free allowance is greater in the UK

which it no longer is under the $18000 dollar tax free threshold from last July.

There are vehicles in the UK which recognise this called Purchased life annuities, this is where part of the draw down is deemed capital and is tax free only the investment earnings ie interest is taxed.

The original question asked if anybody knew about the tax treatment or had had experience of this situation.

many thanks

I am taxed in Australia on Pension, savings and investments in the UK......what is the difference? I choose to live in Australia therefore I play by that country's rules

The Difference here is you received Tax relief when you put your Money in the UK Super.

I didn't, I paid tax some at 30% and some at 15%.

Surely this is Double Taxation?

Rupert,

The point is that it has already been taxed in Australia when it was put into super some at 15% and some at 30%.

There is no tax relief for such as in the UK.

Also if it is drawn in Australia after the age of 60 it is Tax Free.

For example 15% tax going in in Australia 20% tax when taken out in the UK therefore 35% tax on a modest income.

The money that was paid in at 30% would then attract 20% on the way out in the UK therefore 50% tax on a modest income.

Hardly fair I am looking to see if there are any concessions.

I can understand tax on the earnings but not on the Capital.

If I decide to return to the UK and draw my Australian Super from my Australian occupational scheme in the UK, will it be fully taxed in the UK even if I am over 60?

I have tried to look for answers to this, but I struggle to find any. The Super Fund I have has some contributions that were taxed at the 15% concessional rate and other contributions that were from fully taxed income. Also a lump sum from the sale of a house which is deemed as taxed income.

I believe that taken as a Lump sum it would be tax free but maybe not as an income stream and it might not be wise to remove it from a scheme with a good investment history.

If it is taxed in the UK then surely this would be tantamount to Double Tax if it were taxed at the full rate?

Also as contributions to a UK Super would attract tax relief at Marginal rates this is doubly unjust.

Any thoughts or anyone else done this?

Thanks

Winter1