surfersj

ATO tax rules for UK pension lump sum.

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    surfersj    11

    I am looking to retire to OZ at age 65 on a parental visa with permanent residency rights.   The move will be funded by accessing the full 100% cash fund from a currently active defined contribution pension scheme.  i.e. instead of taking the 25% tax free lump sum and purchasing an annuity, I will withdraw the full pension pot amount and pay tax at my marginal rate in the UK before emigrating.   If I use a simplified hypothetical maths example to explain the scenario:-  assuming a pension fund value of £200,000 I would take £50,000 tax free and pay 40% tax on the balance.   This would provide me with a net fund amount of £140,000 which I would take to OZ. 

    If I were to wait until I have moved to OZ before withdrawing my full pension pot, I believe this would not be financially beneficial as the double taxation agreement does not cover pension lump sums?   So even if I waited until I moved to OZ, HMRC would still take the same amount of tax and potentially, ATO may also tax me on some or all of the fund.   So, I would end up paying more tax in total and be better making the pension withdrawal in the UK before moving to OZ?

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    On 16/05/2017 at 22:01, surfersj said:

    I am looking to retire to OZ at age 65 on a parental visa with permanent residency rights.   The move will be funded by accessing the full 100% cash fund from a currently active defined contribution pension scheme.  i.e. instead of taking the 25% tax free lump sum and purchasing an annuity, I will withdraw the full pension pot amount and pay tax at my marginal rate in the UK before emigrating.   If I use a simplified hypothetical maths example to explain the scenario:-  assuming a pension fund value of £200,000 I would take £50,000 tax free and pay 40% tax on the balance.   This would provide me with a net fund amount of £140,000 which I would take to OZ. 

    If I were to wait until I have moved to OZ before withdrawing my full pension pot, I believe this would not be financially beneficial as the double taxation agreement does not cover pension lump sums?   So even if I waited until I moved to OZ, HMRC would still take the same amount of tax and potentially, ATO may also tax me on some or all of the fund.   So, I would end up paying more tax in total and be better making the pension withdrawal in the UK before moving to OZ?

     

    Hello and apologies for the delay, I do not seem to be getting email notifications since the forum was upgraded.

    You essentially have three options...the first of course you are aware of.

    The second is a transfer to Australia however this would seem to only be an option if you are to move to Australia prior to age 65.

    The reason being is that UK Pension Transfers are typically seen as contributions to superannuation, currently there is a $100,000 per financial year limit (there is also the ability if under age 65 to use the bring forward rule which allows the use of effectively two future financial years (thus allowing $300,000 in one hit)) and to be able to contribute a person must be either under age 65 or if over meet the 'Works Test'

    If a person has transferred a UK Pension to an Australian Super Fund and is permanent resident (Citizen) and has met a full Condition of Release they are able to withdraw funds as and when they wish and if over age 60 tax-free (from an Australian perspective).

    From a UK perspective and assuming the receiving Australian Scheme is a QROPS a person will not pay UK tax on withdrawal if they are an Australian tax resident and withdraw benefits similarly to how they could have been withdrawn in the UK and at the appropriate age (55+) which is essentially up to a 25% Pension Commencement Lump Sum (PCLS) and then income in the form of flexi access-drawdown.

    Thirdly you could leave the pension in the UK and access it from Australia therefore if drawing from a UK pension as an Australian resident -

    Lump sum withdrawals are assessable in accordance with the foreign super lump sum benefit payment rules: https://www.ato.gov.au/Individuals/Super/In-detail/Withdrawing-and-paying-tax/Super-lump-sums-from-a-foreign-super-fund/

    Income payments are assessed for tax under foreign income rules (typically at a person's MTR).

    I hope this helps but I recommend that before making such a decision you seek suitable professional advice.

    Kind regards

    Andy.

     

     

     

     


    Director - Vista Financial Services - Financial Advisor for Poms in Oz - UK Pension Transfers / Financial Advice

    Andrew@vistafs.com.au FPA Member, Adv Dip FP www.vistafs.com.au Ph: 08 8381 7177

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    surfersj    11

    Many thanks Andy for this information.   I am indeed trying to understand all the implications of the move as best as I can before pursuing professional advice.   I will actually be age 66+ before moving to Australia.

    The option that I am currently trying to research at the moment is to consider transferring the total funds in my UK Defined Contribution Pension into a UK based SIPP and after taking my 25% tax free lump sum before emigrating, leave the balance invested (in very low risk funds)  in a Flexible Drawdown scheme.   In this regard I am trying to get my head around the difference between drawing a "lump sum" versus an "income"   My understanding is that once in Australia, any sums withdrawn from the drawdown scheme no matter how frequent or size, would come under the category of "income" and not "lump sum" and therefore, I would pay tax on each withdrawal at my MTR.    Is that correct?

    Another question I have about Flexible Access Drawdown relates to the UK/OZ double-taxation agreement and perhaps if any UK Expats are out there who are in a similar situation to myself they could help clarify. Once in Australia I can submit a certificate of residence to ATO for onward submission to HMRC that allows for my UK state pension and my monthly private/occupational final salary pension to be paid gross into my UK bank account without deduction of tax.  I would only pay tax on this income in Australia.  My question re FAD is whether or not the DTA considers these withdrawals to be a "pension" or is it considered investment income?  In other words, the UK FAD provider would be obliged to deduct tax at my UK MTR before making payments into my UK bank account.   Then I would also pay tax in Australia and would receive a tax credit offsetting the tax already deducted in the UK.   It looks like in the UK my MTR for withdrawals would be 20% but in OZ my MTR would be 32.5%   So, if I am correct, to all intents, HMRC would receive 20% tax and ATO would receive 12.5% so my total tax liability on all withdrawals would be 32.5% 

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    On ‎24‎/‎05‎/‎2017 at 02:37, surfersj said:

    Many thanks Andy for this information.   I am indeed trying to understand all the implications of the move as best as I can before pursuing professional advice.   I will actually be age 66+ before moving to Australia.

    The option that I am currently trying to research at the moment is to consider transferring the total funds in my UK Defined Contribution Pension into a UK based SIPP and after taking my 25% tax free lump sum before emigrating, leave the balance invested (in very low risk funds)  in a Flexible Drawdown scheme.   In this regard I am trying to get my head around the difference between drawing a "lump sum" versus an "income"   My understanding is that once in Australia, any sums withdrawn from the drawdown scheme no matter how frequent or size, would come under the category of "income" and not "lump sum" and therefore, I would pay tax on each withdrawal at my MTR.    Is that correct?

    Another question I have about Flexible Access Drawdown relates to the UK/OZ double-taxation agreement and perhaps if any UK Expats are out there who are in a similar situation to myself they could help clarify. Once in Australia I can submit a certificate of residence to ATO for onward submission to HMRC that allows for my UK state pension and my monthly private/occupational final salary pension to be paid gross into my UK bank account without deduction of tax.  I would only pay tax on this income in Australia.  My question re FAD is whether or not the DTA considers these withdrawals to be a "pension" or is it considered investment income?  In other words, the UK FAD provider would be obliged to deduct tax at my UK MTR before making payments into my UK bank account.   Then I would also pay tax in Australia and would receive a tax credit offsetting the tax already deducted in the UK.   It looks like in the UK my MTR for withdrawals would be 20% but in OZ my MTR would be 32.5%   So, if I am correct, to all intents, HMRC would receive 20% tax and ATO would receive 12.5% so my total tax liability on all withdrawals would be 32.5% 

    No problem.

    You say:

    "My understanding is that once in Australia, any sums withdrawn from the drawdown scheme no matter how frequent or size, would come under the category of "income" and not "lump sum" and therefore, I would pay tax on each withdrawal at my MTR".  

    Can I ask how you have come to this understanding?

    This is actually one of the areas that advice should be sought on as I do not believe that it is a straight forward answer. Certainly the UK will class it as income but I am not so sure it is clear the ATO will IF it is actually taken as a lump sum, so there seems to be some conflict. Another point here is that I do not believe that the Double Tax Convention covers lump sum pension withdrawals.

    Regards pension income in my opinion IF a person is  an Australian Resident and draws private pension income from a UK pension (including drawdown pensions) Australia has taxing rights and the pension can be paid gross from the UK.

    However I am a Financial Planner and not a Tax Adviser and would as previously suggested urge to seek appropriate advice.

    I understand that at this stage you are just trying to do some initial research before seeking advice which is understandable.

    Hope this helps, good luck and let us know how you go.

    Regards Andy

       


    Director - Vista Financial Services - Financial Advisor for Poms in Oz - UK Pension Transfers / Financial Advice

    Andrew@vistafs.com.au FPA Member, Adv Dip FP www.vistafs.com.au Ph: 08 8381 7177

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    Just to add, I am not saying you are wrong more if you have read this somewhere it would be good to know where from?


    Director - Vista Financial Services - Financial Advisor for Poms in Oz - UK Pension Transfers / Financial Advice

    Andrew@vistafs.com.au FPA Member, Adv Dip FP www.vistafs.com.au Ph: 08 8381 7177

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    kiddo    0

    Hi Andy,
    Could you help me? I just received PR. I am 36 and want to transfer my english pension to Westpac. Is this possible? I understood if i didnt transfer within a year of getting PR there would be extensive tax implications.
    Thanks

    Sent using Poms in Oz mobile app

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    Hi Kiddo

    No it is not I am afraid, not since April 2015 as only 55+ year olds can consider a transfer.

    The part about not transferring within a year or an extensive tax is applied is not true, the tax charge relates to a transfer that occurs 6 months after a person becomes an Australian Resident (excluding temp residents (while temp residents)), that said the tax is typically not as onerous as perhaps thought (or made out).

    Regards

    Andy


    Director - Vista Financial Services - Financial Advisor for Poms in Oz - UK Pension Transfers / Financial Advice

    Andrew@vistafs.com.au FPA Member, Adv Dip FP www.vistafs.com.au Ph: 08 8381 7177

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