Some good news for pension transfer to Oz

[xmascreek]

I've been reading the ATO web site about non concessionary contributions to Super Funds in OZ - generally the way you transfer your UK pension into a QROP I understand. It seems that from July 2018 you can 'carry forward' up to $500k as long as your fund is less than $500k at the time. So for new folks arriving at the time it would seem that this allows you to transfer at least  £295k directly into your super at the time. This is more than at the moment where the cap is $300k AUD.

https://www.ato.gov.au/Individuals/Super/Super-changes/Change-to-concessional-contributions-cap/

So if you had £600k in your pension fund in the UK you could release £150k tax free from your pension before going over to Australia, that lands in Oz tax free, the rest is transferred as QROP up to $500k and the rest is kept in the UK (where it will incur some tax on release). 

All of this assumes that if you're over 55 then this could be better news after the disaster of the QROP situation on BOTH sides of the world over the last few years.

Still it's crazy that the Australians still CAP our pension savings - better for them if we could transfer it all over to them.

 

[Andrew from Vista Financial]

Hello

Unfortunately what you are describing in terms of changes to contributions does not relate to UK pension transfers.

The changes above are in relation to concessional contributions however UK pension transfers fall into the non-concessional contribution category (other than the growth amount (Applicable Fund Earnings)) which essentially fall into neither category.

Therefore these changes have no impact on the amount that can be transferred for UK pensions I'm afraid.

Regards

Andy

 

 

Edited October 23, 2017 by Andrew from Vista Financial

[xmascreek]

Hmm - so how does one transfer $1M worth of UK pension to Australia then? Every single 'so called' advisor site is at least  2 years out of date and non take into account any of the more recent announced changes.

Edited October 23, 2017 by xmascreek

[Andrew from Vista Financial]

Not very easily unfortunately, progressive transfers are likely to have to occur strategically to avoid unnecessary implications from both a UK and OZ perspective.

[xmascreek]

I'm still confused - the whole process seems deliberately cloaked in mystery.

In theory, if I set up a ROPS once I move to Australia (that would conform to both sets of rules and be within 6 months of first setting up in Australia and registering for tax etc) and I'm over 55, can I transfer the whole UK pension to an Australian self managed Super? Or would I be limited to a particular amount? If so what is that amount.

The process shouldn't be complicated, there just doesn't seem to be any updated advice. I understand that the devil is in the detail and that each circumstance will be unique, but that's really about investment profiles.

Here's a 'hypothetical example - 

Age on emigration 58 years old, UK private pension $1M, customer expects to work until 65/67 years old

Can they withdraw $250k in UK tax free (take that with them) and transfer the $750k balance on arrival in Australia into a Self administered Super that conforms to ROPS?

Are they able draw on that Super fund from age 60? 

[Gbye grey sky]

38 minutes ago, xmascreek said:

I'm still confused - the whole process seems deliberately cloaked in mystery.

In theory, if I set up a ROPS once I move to Australia (that would conform to both sets of rules and be within 6 months of first setting up in Australia and registering for tax etc) and I'm over 55, can I transfer the whole UK pension to an Australian self managed Super? Or would I be limited to a particular amount? If so what is that amount.

The process shouldn't be complicated, there just doesn't seem to be any updated advice. I understand that the devil is in the detail and that each circumstance will be unique, but that's really about investment profiles.

Here's a 'hypothetical example - 

Age on emigration 58 years old, UK private pension $1M, customer expects to work until 65/67 years old

Can they withdraw $250k in UK tax free (take that with them) and transfer the $750k balance on arrival in Australia into a Self administered Super that conforms to ROPS?

Are they able draw on that Super fund from age 60? 

You can withdraw the 250k tax free in that scenario but can only transfer 300k of the remainder right away.  The remainder would rmain in the UK and brought over in stages perhaps.

With that scenario you have many options and much planning to do.  You are probably going to need the help of a financial advisor with UK and Oz experience to flesh out all the options.

Prior to April 2015 it was simple but HMRC and ATO have complicated it massively.

[xmascreek]

Thanks - That concours with my thoughts - but with the added bonus that if the bulk transfer happens after June 2018 then the 'carry forward' is 5 years at $100k per year, so this should mean $500k and then drip feed from the UK pension. This was the original premise of my assumption, but Andy seems to think this is not the case.

I've read a number of Andy's posts and realise that he's a major contributor and domain expert, so I remain a little confused. 

It's clear that the current crazy status quo between HMRC/ATO only benefits people over 55 (which I am) so I feel 'lucky' in that I will be a major beneficiary of some of the current (and the post June 2018) legislation. The main thing for me, in my circumstance, is to make sure that I time arrival for maximum benefit for UK pension contribution in the final year before departure, then withdrawal (ie the 25% tax free part). Then transfer into an Australian Super fund. 

At the moment it looks like I'll max contribution in 2018 (I've been putting in £50k per year over the last few years due to UK carry over), then do the same thing on moving at the end of 2018 to Australia. The freed $250-350k from the UK pension will go into a non-Super tax efficient area (bizarrely still seems like it would be let-out investment housing - though not Sydney !! ). With the rest transferring to Super and drip fed for the rest over time.

The question is simple - can I expect to transfer $300k or $500k on Sept 1 2018 ? This still seems to be at dispute - hence the link 

"From 1 July 2018, you will be able to 'carry-forward' any unused amount of your concessional contributions cap. You will be able to access your unused concessional contributions cap on a rolling basis for five years. Amounts carried forward that have not been used after five years will expire."

https://www.ato.gov.au/Individuals/Super/Super-changes/Change-to-concessional-contributions-cap

 

 

[Ken]

4 hours ago, xmascreek said:

Thanks - That concours with my thoughts - but with the added bonus that if the bulk transfer happens after June 2018 then the 'carry forward' is 5 years at $100k per year, so this should mean $500k and then drip feed from the UK pension. This was the original premise of my assumption, but Andy seems to think this is not the case.

I've read a number of Andy's posts and realise that he's a major contributor and domain expert, so I remain a little confused. 

It's clear that the current crazy status quo between HMRC/ATO only benefits people over 55 (which I am) so I feel 'lucky' in that I will be a major beneficiary of some of the current (and the post June 2018) legislation. The main thing for me, in my circumstance, is to make sure that I time arrival for maximum benefit for UK pension contribution in the final year before departure, then withdrawal (ie the 25% tax free part). Then transfer into an Australian Super fund. 

At the moment it looks like I'll max contribution in 2018 (I've been putting in £50k per year over the last few years due to UK carry over), then do the same thing on moving at the end of 2018 to Australia. The freed $250-350k from the UK pension will go into a non-Super tax efficient area (bizarrely still seems like it would be let-out investment housing - though not Sydney !! ). With the rest transferring to Super and drip fed for the rest over time.

The question is simple - can I expect to transfer $300k or $500k on Sept 1 2018 ? This still seems to be at dispute - hence the link 

"From 1 July 2018, you will be able to 'carry-forward' any unused amount of your concessional contributions cap. You will be able to access your unused concessional contributions cap on a rolling basis for five years. Amounts carried forward that have not been used after five years will expire."

https://www.ato.gov.au/Individuals/Super/Super-changes/Change-to-concessional-contributions-cap

 

 

$300K. The rules are quite clear. Andy has already pointed out to you that the 5 year carry forward only applies to the $25K concessional contributions cap (allowing you to contribute $125K taxed at 15% in a 5-year period from your pre-tax earnings) and not to the $100K non-concessional contributions cap which allow only a 3 year carry forward (allowing you to contribute $300K in a 3-year period tax free from your post-tax earnings or from foreign pensions).

[xmascreek]

Thanks Ken - yes that's clear now - in the UK there is no concept of non/concessionary contribution so that's where my confusion came from. 

Messy, but yes - it's clear that I'll need to bring over the $300k then drip feed the rest for 5-10 years. All monies left in the UK pension during that time will then accrue capital gains tax as well ! The $250k tax free part will need to be invested in property by the looks of things as Australia seems to only encourage Property investment :-)

I'm beginning to understand why my Australian workmates whinge about 'over taxation' back home in Australia :-(

[Andrew from Vista Financial]

So on the hypothetical you give above the strategy could look like this:

$300k Age 58 

$300k Age 61 

$300k Age 64

$100k Age 67 (Assuming that the works test is met).

There is the $1Mill..................................however it will not be as straight forward as this, this $1Mill will fluctuate significantly along the way due to exchange rates and earnings so will need to be accounted for at each juncture (as well as potential indexation increases to the cap over this time).

Also any growth on the monies along the way will be taxed in Australian upon transfer AND for this growth to be taxed most optimally the from scheme will need to be closed at the time of transfer (an ATO rule) therefore further (Pensions/SIPPS) may be required to be opened down the track to manage this.

You will also need to take care when considering the strategy of withdrawing the lump sum, if you do take it and then do not structure your UK Pensions correctly you may find you are unable to transfer any funds to Australia.

We understand that if the PCLS (up to 25%) is taken then the remaining fund would need to be transferred in full and to a scheme with no other assets (a UK rule)  however if there is more money in the scheme after taking the lump sum than the Australian contribution cap this could create difficulties. 

Therefore your suggestion of taking the $250k lump sum and immediately moving $300k of the remaining $750k is unlikely to be viable without pre-planning and correct structuring from the UK side.

Finally in relation when monies can be withdrawn from superannuation, firstly preservation age needs to be met which is as follows: 

Date of birth	Preservation age (years)
Before 1 July 1960	55
1 July 1960 – 30 June 1961	56
1 July 1961 – 30 June 1962	57
1 July 1962 – 30 June 1963	58
1 July 1963 – 30 June 1964	59
After 30 June 1964	60

Once preservation age is met it is possible to draw up to 10% of the balance each year under a Transition to Retirement Pension (Income Stream) if still working OR if retired from the workforce (or age 65 is reached) then up to 100% is accessible.

It might be tempting to try and undertake this process on your own however given the sum of money involved and the potential for error I would strongly advise seeking professional advice at the time.

Regards

Andy 

 

Edited October 25, 2017 by Andrew from Vista Financial

[xmascreek]

Thanks Andy good advice - I do fall into the Jan'60 age group so past the 55  preservation age. Interesting about the all or nothing transfer requirements if 25% is withdrawn - the original reason for withdrawal was an assumption that it would be easier to transfer the tax free element as it would already be sitting in the bank. Also the thought of paying 15-20% capital gains over the 9 year period is something that would need to be balanced against just paying the tax in the UK , though I'm sure there are many additional 'traps'  along that route as well :-)

I'm assuming that going into the Super non of the transferred funds would be taxed?

[xmascreek]

I've read in number of threads that I could still take my 25% tax free allowance for the UK pension (ie a lump sum) at some later point and that the ATO would not tax that portion - does anyone know if this is true (it's yes/no question). Or am I better off taking the 35% BEFORE I leave the UK ?

 

 

[Andrew from Vista Financial]

Hello

Unfortunately it is not a yes/no question/answer it is individual specific.

That said it is a yes/no whether it will be assessed for tax and the answer to that question is yes it is however whether there is tax payable is dependent upon a number of things. 

Regards

Andy

Edited February 8, 2018 by Andrew from Vista Financial

[xmascreek]

Perhaps I could rephrase the question - in the UK the first 25% of pension is not taxed against personal allowance (either lump sum withdrawal or part of draw down). The rest is included in tax assessment as taxable income. So for example if I didn't take the lump some and took it as income then the first 25% of a monthly draw down would not be submitted as taxable income, the rest would be assessed against the personal allowance and tax would be paid on anything over £11,500 per year. 

I read that the ATO had recognised the 25% tax free allowance from UK pensions. Or would the full amount be subject to tax in Australia and therefore tax paid on the 25% part in addition. I'm aware that the double taxation treaty means that any tax paid in the UK could be used to offset any tax due in Australia under the world wide income. But the yes/no part is, does the ATO recognise the 25% tax free part in the UK as tax free in Australia.

The simple reason is - if they do not recognise the 25% tax free element, then I'm better off cashing as a lump sum 'before' I become a full time resident in Australia and put it to work in Australia (top for mortgage or super contribution over time).

 

[Ken]

3 hours ago, xmascreek said:

Perhaps I could rephrase the question - in the UK the first 25% of pension is not taxed against personal allowance (either lump sum withdrawal or part of draw down). The rest is included in tax assessment as taxable income. So for example if I didn't take the lump some and took it as income then the first 25% of a monthly draw down would not be submitted as taxable income, the rest would be assessed against the personal allowance and tax would be paid on anything over £11,500 per year. 

I read that the ATO had recognised the 25% tax free allowance from UK pensions. Or would the full amount be subject to tax in Australia and therefore tax paid on the 25% part in addition. I'm aware that the double taxation treaty means that any tax paid in the UK could be used to offset any tax due in Australia under the world wide income. But the yes/no part is, does the ATO recognise the 25% tax free part in the UK as tax free in Australia.

The simple reason is - if they do not recognise the 25% tax free element, then I'm better off cashing as a lump sum 'before' I become a full time resident in Australia and put it to work in Australia (top for mortgage or super contribution over time).

 

The simple answer is that they do not recognise the 25% tax free element (that's a UK allowance). But that doesn't mean you have to pay tax on the entire 25% either. For one thing much of it will have been earned before you became subject to Australian tax and you are able to exempt that proportion.

[xmascreek]

thanks Ken - that's an interesting point - I suppose the best thing it to get a valuation on leaving. 

OK - my normally sharp brain is beginning to melt down :-)

So that implies that I'd only pay ATO tax on any 'gain' in my 'realised' pension after I leave for Australia, but how would they determine the 'gain' if I draw down in monthly amounts - is there a formula they apply?

For example leave UK with £500k pension pot, after 10 years it grows (organically @ say 4%, and no additional contributions) to £740k

- then (assume no 25% withdrawal and no other income inc state pension for ease of example)

If I keep it all in the UK and draw down £30k per year at 65 years old (usual 4% draw down rate) then 25% is tax free in the UK (so £7.5k) then the next £11.5k is tax free (personal allowance) leaving £11k to be taxed (£2.2k tax @20%) - so net amount after UK tax deductions would be £27.8k

How does the ATO regard this ?

As £30k ($52k) taxable income (minus taxes already paid in the UK) OR as £22.5k taxable income (because the 25% was free in the UK)?

The withdrawal route would be take out £125k tax free bring it over to Australia and bank it in stocks trust etc in either a super (over time) or property (nah! - well maybe)

In the UK we section off different allowances (ie ISA, Pension 25%, personal annual capital gains allowance and personal allowance) but this doesn't seem to be the case in Australia (apart from property and super).

So the big decision is - if I leave the 25% lump sum within the Pension how does the ATO regard it? 

Is there a Motley Fool guide anywhere that explains this in simple terms rather than shrouding it in 'expert' mystic :-)

 

Edited February 8, 2018 by xmascreek