Tax free lump sum pensions

[Guest 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]

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.

[Guest 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.

[Guest 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

[Guest 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

[Guest 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

[Guest 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.

[Guest The Picketts]

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

[Guest Liam]

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

[Guest BRISSYBOUND]

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

[Guest Pinhead]

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

Liam

If you don't move over your pension pot in the 1st 6 months of becoming a permanent resident but do later, do you get taxed on the whole of the amount transferred into your oz fund at 15% or just the gain since you became a PR?

 

With the indifferent stock market performance and the poor exchange rate it could be worthwhile not transferring within the 6 month period if the forex rate improves by at least 15% in the next year or so which is quite possible.

 

My main concern with transferring my PP to an oz fund is that I may not be able to move it back if I ever decide to return to the UK.

[Guest Liam]

You hit the nail on the head as far as the last 6 months go.

 

If you wait until after the 6 months to transfer your pensions then you only pay tax at 15%on the growth in your pension since the day you became a permanent resident (exercised the visa by entering the country). So for example if you moved a year ago and are only now transferring your pension then you would pay tax on the growth in the last 12 months (sadly propbably a minus figure!).

 

Weigh this up against the benefit of waiting until you were settled in Australia for a year, comfortable that you planned to stay and in a position to take the decison that this was a lifetime move.

 

Remember by moving your pensions in the first 6 months you only save the 15% tax for that short period as once your funds are over here they are taxed on their income and crystallised growth in the Australian Superannuation system at 15% each year until you retire or begin a Transition to Retirement Pension after age 55 or later. So its just that 6 months you are saving tax on and in the last year that would be nothing! BUT THE COMING YEAR COULD THE OPPOSITE AND A BIG RECOVERY COULD MEAN HIGH GROWTH.

 

I always recomend that if people are not sure that they will stay in OZ and that they want to have some time here first that they do the ground work first and have all the details of their pension including a name and email/telephone number of a manager/supervisor in the Pensions Claim department of their Pension service. Then take 6-12 months to see how they enjoy Australia and once they are comfortable they start the transfer process and see a Financial Planner (yes that's a plug for my service!) to make sure you make the right moves.

 

Why not wait longer?

 

Well under australian tax law you are taxed on your worldwide income and this could mean that you need to annually declare the growth in your UK Pension as income and be taxed at your marginal tax rate under the Foreigh Investment Funds rules. You need to get individual advice on your tax circumstances to decide how these effect you.

 

Hope this helps

 

 

Liam

[Guest mudhut29]

we came to OZ 15 years ago leaving behind occupational pension schemes having been told we could not xfer to OZ.

In 1995 we found a great finance guy who researched uk law and told uk pension people they could not refuse to xfer to OZ to an approved scheme. we xfered pensions in 1997 and are now retired. As in most countries the pension laws are constantly changing. At the moment if you are >60, retired you do not pay tax on any pension income sourced in OZ. If you have a foreign pension you are liable to tax. The first 10% is not taxed, the remainder is taxed at standard rates. We know this as we have a uk government pension.

One other point, we were allowed to top up our uk government pension from OZ. Each year of contribution adding about 2.2% to uk pension. As contributions were about GBP380 per annum the extra pension gave us a payback period of about 3.5 years. However with the OZ dollar so strong at the moment that is probably nearer 4.5 years now; still a good deal though.

[Guest BRISSYBOUND]

When you say government pension do you mean pension from government job ie NHS,council or state pension from NI contributions,thanks Fred

[Guest mudhut29]

NI contributions and SERPS as was

[Guest royce]

When you say "If you have a foreign pension you are liable to tax. The first 10% is not taxed, the remainder is taxed at standard rates. We know this as we have a uk government pension." are you referring to the fact that the ATO allows you to exclude 8% of your UK State Pension by way of the undeducted purchase price provision?

 

If not, what is the 10% exclusion you are referring to?

[Guest mudhut29]

used to be 8% now 10%

[Guest royce]

I cannot find any reference to the 8% tax free UPP being increased to 10%. Where are you getting your information from?