Is Australian Super taxed in the UK

[Marisawright]

1 hour ago, Sleeples in Australia said:

Hi.  New to the forum so be patient please.  Was there a definitive answer to Winter1 question back in 2013  "Is Australian Super taxed in the UK?".  I am looking at returning this year and am worried thaT i will be double taxed (15% on contributions in Australia, then taxed on Australian pension income in the UK).

Any help appreciated.

Your pension is tax free in Australia (you paid 15% tax when it was in superannuation mode, it’s tax free once you start taking it as a pension). 

You’ll have to declare it on your UK tax return and it will be taxed at whatever the rate for foreign pensions is at the time.

[BillW]

Hello,

Anybody had any interesting experiences or revelations since the last post was made ?

This is interesting  https://www.gov.uk/government/publications/pension-tax-for-overseas-pensions/pension-tax-for-overseas-pensions#chapter-2---taxation-of-payments-from-foreign-pension-schemes-or-annuities

Relevant section is approx half way down the page titled  "Changes to taxation of pension payments"

Am currently wading through it attempting to reduce it into everyday vernacular English.

Bill

 

[Guest The Pom Queen]

@Andrew from Vista Financial can hopefully answer your questions he is our super and pension guru for both Australia and UK along with a great financial advisor 

[Guest The Pom Queen]

On 14/10/2019 at 20:02, BillW said:

Hello,

Anybody had any interesting experiences or revelations since the last post was made ?

This is interesting  https://www.gov.uk/government/publications/pension-tax-for-overseas-pensions/pension-tax-for-overseas-pensions#chapter-2---taxation-of-payments-from-foreign-pension-schemes-or-annuities

Relevant section is approx half way down the page titled  "Changes to taxation of pension payments"

Am currently wading through it attempting to reduce it into everyday vernacular English.

Bill

 

The original post was made in 2013 I would think any changes wouldn’t be in our favour 

[Ken]

On 31/10/2019 at 04:58, The Pom Queen said:

The original post was made in 2013 I would think any changes wouldn’t be in our favour 

One change does appear to be in the taxpayer's favour. Provided I'm reading it correctly 25% of a lump sum payment can be taken tax free (same as with a UK pension fund). That wasn't originally the case. An Australian Superannuation fund (other than an SMSF) appears to tick all the boxes under PTM112200.

[4ever15]

On 11/11/2019 at 07:54, Ken said:

One change does appear to be in the taxpayer's favour. Provided I'm reading it correctly 25% of a lump sum payment can be taken tax free (same as with a UK pension fund). That wasn't originally the case. An Australian Superannuation fund (other than an SMSF) appears to tick all the boxes under PTM112200.

Hello 

any updates on this ?  I’ve got an untouched Australia accumulated superannuation fund and tho I was thinking of setting up a pension it’s a one off choice wondering if it is better to take a lump sum & leave the rest but no clue what the implications are.

i didn’t think  you could  take 25% tax free as uk doesn’t approve of Australian funds. Which on the surface seems crazy as uk funds are hardly a gold standard. Thanks 

[Marisawright]

7 hours ago, 4ever15 said:

 I’ve got an untouched Australia accumulated superannuation fund and tho I was thinking of setting up a pension it’s a one off choice wondering if it is better to take a lump sum & leave the rest but no clue what the implications are.

i didn’t think  you could  take 25% tax free as uk doesn’t approve of Australian funds. Which on the surface seems crazy as uk funds are hardly a gold standard. Thanks 

When you say, "setting up a pension is a one off choice", what do you mean?

If you're doing what most Australians do, which is to convert your super to an income stream, then it's not a one off choice.  You can choose to vary the monthly payments whenever you like (though there's a minimum amount you must take every year).   You can also commute the pension to a lump sum at any time.

If you're thinking of setting up a pension that will pay you a guaranteed monthly amount, that's not called a pension in Australia, it's called an annuity.  You can buy one for x number of years, or buy one that will go on paying until you die.  My brother-in-law went that route and bitterly regretted it when he got cancer in his late sixties.  If he'd had an income stream instead of an annuity, he could have chosen to take a lump sum there and then and enjoy the time he had left.  As it was, you can't get a lump sum from an annuity - and of course, the payments stopped when he died, so his widow got nothing.  If he'd had an income stream, she would've inherited the money.

The downside of an income stream pension is that it only lasts as long as there's money in the fund - but it does give you a lot more flexibility.

Edited December 10, 2019 by Marisawright

[4ever15]

Thanks Marisa

 tho you can choose when and how much you take out subject to a minimum  I can’t seem to set up an income stream and leave money invested to top up the stream. As it runs Down. .  My plan. Was to take a chunk now as a stream and leave some invested in Super then later top up the income stream. That’s doesn’t seem to be allowed. In the uk have to  pay tax. I may move to Australia who knows depends a bit on how things work out in uk.  So it’s crazy to take most done the fund when I’m in the uk. 
Definitely wouldn’t take annuity agree. Not a good idea. Thanks anyway. 

[Marisawright]

3 hours ago, 4ever15 said:

Thanks Marisa

 tho you can choose when and how much you take out subject to a minimum  I can’t seem to set up an income stream and leave money invested to top up the stream. As it runs Down. .  My plan. Was to take a chunk now as a stream and leave some invested in Super then later top up the income stream. That’s doesn’t seem to be allowed. 

No, because it’s not necessary. You move the whole lot to an income stream. Then the money in the income stream fund continues to be invested and earn interest exactly the way it did in your super fund. So there would be no benefit in leaving any money in your super fund. 

Edited December 14, 2019 by Marisawright

[4ever15]

Thanks and Yes from the perspective of an Australian  living in AUS ,  def. no  advantage it’s  tax free.
I am not living there now (tho may in the future as uk becomes ever more of a basket case).  So uk wise  i would be   paying 40% tax -  it’s better for me to just take out what I need a lump sum and leave the rest.  I think I can do that but EVEN that is not so easy when you are in Europe. I’m on the wrong forum just  found the post appreciation for thoughts. Im

super complicated 

[Marisawright]

1 hour ago, 4ever15 said:

So uk wise  i would be   paying 40% tax -  it’s better for me to just take out what I need a lump sum and leave the rest.  

The lump sum will be taxed at 40% (or even more, if it pushes you up into a higher tax bracket that year), so how will that help?  

You need to consider what other sources of income you'll have in your retirement. You won't be paying 40% tax on the pension if you don't have a lot of other income.

Did you understand my explanation of how the "income stream" pension works?   The income stream not a frozen sum of money that just sits there and gets depleted.  The money is still invested, the way it was in your super fund, so it's still growing.   That's why there's no need to leave any of your money in the old super fund.

Edited December 15, 2019 by Marisawright

[BillW]

Hello,

 

5 years since the last message posted.
 

Any huge changes to policies or workarounds or ideas in that time ?  I do get the impression that there are ways of minimising the tax you pay on Australian super in the UK but it requires some planning and consulting with a specialist accountant or tax agent well before the move to the UK and this can be very expensive.

HMRC have a forum where Aussies keep asking variations on this question for the last 4 years and HMRC responses are basically "You are taxed on your worldwide income" and there are various references to HMRC web pages that can be quite difficult for a layperson to understand. Worth a look if you have not seen it before.

Took me a while to understand the differences between UK and Australian retirement systems

UK : No tax on the deposits, no tax on earnings, taxed on the way out

Australia : Taxed on the  deposits, taxed on the earnings, no tax on the way out

I read somewhere that the double tax agreement gives the UK the right to tax you on your Australian pension if your are resident in the UK

I have seen hints in various places that one lump sum withdrawal per year might be a partial workaround and could be useful if you have nor set up the allocated pension yet - ie if you are still in accumulation. 

So any new ideas from anybody ? Any consultants or accountants you can recommend ?

 

Bill

[Ken]

27 minutes ago, BillW said:

I have seen hints in various places that one lump sum withdrawal per year might be a partial workaround and could be useful if you have nor set up the allocated pension yet - ie if you are still in accumulation. 

Sorry, but I can't see how one withdrawal would give you any advantage over twelve withdrawals in the same tax year (assuming you're a UK resident for the whole tax year). It's still income and if your total income is over the tax-free threshold you'll be paying tax.

[Alan Collett]

Foreign Service Relief in the UK might work to your advantage.

We'll be happy to review this and to report to you.   See the bdh Tax email address below.

Best regards.

 

[Marisawright]

1 hour ago, BillW said:

I read somewhere that the double tax agreement gives the UK the right to tax you on your Australian pension if your are resident in the UK

Absolutely nothing to do with the double taxation system.  The situation is this:

Whether you are living in Australia or living overseas, your superannuation withdrawals or allocated pension are paid to you free of Australian tax.  

If you are living overseas, your super withdrawals and pension are subject to whatever the tax rules are in your new country.  In the UK, that rule is that they are taxed as ordinary income.  

1 hour ago, BillW said:

I have seen hints in various places that one lump sum withdrawal per year might be a partial workaround and could be useful if you have nor set up the allocated pension yet - ie if you are still in accumulation.

So what you're saying is, don't convert your super to a pension, just leave it in the super fund.  Then take a lump sum withdrawals once a year.

I can't see how that helps.  You'll still have to declare the lump sum as income, e.g. if your lump sum is $26,000, you'll have to add that whole $26,000 to your other income for the year, and pay tax on it. You could take an allocated pension of $500 a week and pay exactly the same tax.

The idea may have arisen because until a few years ago, reporting on international money transfers was sketchy, and people could get away with transferring lump sums, not declaring it to HMRC and no one was any the wiser.    Now, the ATO and the HMRC share information, so that avenue -- which was always illegal anyway -- has closed.

 

Edited March 20 by Marisawright

[Ken]

18 hours ago, Marisawright said:

Absolutely nothing to do with the double taxation system. 

Absolutely everything to do with the double taxation system. The Double Taxation Agreement (DTA) between the UK and Australia specifically allocates the taxation of pension income only to the country where the pensioner is resident. This is different to the rules on all other income.

[Alan Collett]

1 minute ago, Ken said:

Absolutely everything to do with the double taxation system. The Double Taxation Agreement (DTA) between the UK and Australia specifically allocates the taxation of pension income only to the country where the pensioner is resident. This is different to the rules on all other income.

... unless the taxpayer is living in Australia as the holder of most types of temporary residency visa - eg subclass 870, or on a BV awaiting a decision on an 804 or 864 visa application.

Best regards.

[Marisawright]

3 hours ago, Ken said:

Absolutely everything to do with the double taxation system. The Double Taxation Agreement (DTA) between the UK and Australia specifically allocates the taxation of pension income only to the country where the pensioner is resident. This is different to the rules on all other income.

...but even if the DTA didn't exist, and the pension was taxable in both the UK and Australia, the effect would be the same (because both the lump sum and the allocated pension are tax-free in Australia). No?

[BillW]

Ken Alan and Marisa,

Thanks for the various replies ........

Have a read of this, written in 2023 in the Telegraph - seems to imply that lump sum withdrawals are possible if you have access to the data to do the calculations required

https://www.telegraph.co.uk/money/tax/tax-hacks/draw-down-australian-pension-savings-taxed-twice-uk/

admittedly I don't know much about that calculation but happy to investigate and learn about it. Just gotta wade through the relevant HMRC page a dozen times.

Edited March 21 by BillW

[BillW]

On 20/03/2024 at 17:55, Marisawright said:

The idea may have arisen because until a few years ago, reporting on international money transfers was sketchy, and people could get away with transferring lump sums, not declaring it to HMRC and no one was any the wiser.    Now, the ATO and the HMRC share information, so that avenue -- which was always illegal anyway -- has closed.

I don't think what is proposed in that newspaper story is illegal, it does include full disclosure to HMRC, but yes it is complicated to a layman like me and appropriate further advice from a suitably qualified person will be sought. I believe I have the relevant data.

One of the things I learned during my working life was that I can give the same data to different engineers and get quite different answers to a problem and am guessing the same could be true for asking an appropriate expert to interpret and apply the appropriate HMRC calculations if its done wrong and HMRC do not agree then that could be a problem.

Does anybody know if its possible to get a calculation done and ask HMRC if its been done correctly before formally submitting it ? 

For example work "with" HMRC rather than against them - I will always remember one particular river diversion project where the statutory authorities were included in the calculations and asked their opinions on the plans before any dirt was excavated - that's an intelligent way to work with statutory authorities.

 

Bill

[Alan Collett]

Hi Bill.

Does anybody know if its possible to get a calculation done and ask HMRC if its been done correctly before formally submitting it ? 

=>   A nice thought, but is not an option.

Best regards.

 

[Marisawright]

37 minutes ago, BillW said:

Have a read of this, written in 2023 in the Telegraph - seems to imply that lump sum withdrawals are possible if you have access to the data to do the calculations required

I can't read the article because a subscription is required. 

I can read the question, which is "Will I be taxed twice?".   You already know that you won't be taxed twice, because Australia does not tax you on withdrawals from your super, or on your allocated pension.

It's simply a question of whether HMRC will tax you, and we know that they will.  Therefore the only question is, how much. That will be determined by the normal rules on income.

Edited March 21 by Marisawright

[BillW]

1 hour ago, Marisawright said:

I can't read the article because a subscription is required. 

 

Marisa,

HMRC provide a worked example here 

https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim75550

Looks interesting but needs a trained brain to get it right.

 

Bill

 

[Marisawright]

1 hour ago, BillW said:

HMRC provide a worked example here 

https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim75550

Looks interesting but needs a trained brain to get it right.

You'll notice that it repeats, several times, that the starting point is that 100% of your lump sum is taxable in the UK and you must declare it as income on your UK tax return.

So then the first thing you need to do, is establish which, if any, of the exemptions apply to an Australian fund.   In any case, all of them just offer some deductions, not a complete exemption from tax.

I can see how you're confused because I just did some Googling and the first results are all advice on the Gov.uk community forums, mostly saying a lump sum withdrawal  is taxable in Australia but not in the UK.  However all of that advice has been given by other members of the forums, not an official UK government official, so I doubt it's worth a bean. Especially as we know you wouldn't be liable for any Australian tax on your lump sum (assuming you're a permanent resident or citizen and over preservation age). 

 

Edited March 21 by Marisawright