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Fletch

Uk Private pension

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    Hi,

    I am 55 next year and have a private pension worth approx 80,000 Sterling. I have been told I can withdraw the full amount which I intend to do so, What is the best way to transfer this to Australia and will I be taxed on this in the Uk and Australia 

    kind regards 

    fletch 

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    Moneycorp

    Moneycorp

    Hello Fletch

    If you do not require the funds (or can perhaps arrange funds from elsewhere if you do for the interim) then you may wish to consider transferring the pension to Australia (from age 55).

    The reason I say this is that the tax treatment from an Australian perspective is as follows:

    Once a person accesses their UK pension this becomes known as a foreign super lump sum benefit payment in the eyes of the Australian Tax Office (ATO), this means that an assessment will be made on the lump sum to consider the growth that has occurred on it, for defined contribution schemes this is done by considering the value of the scheme on the date of Australian Residence against the value of the scheme on the date of access. This growth known as Applicable Fund Earnings is then assessed at the persons marginal tax rate.

    As a crude general example of this, the pension was worth £50,000 at date of residence and on the day the lump sum is accessed the scheme is worth £80,000 and there have been no contributions to the scheme within these dates.

    This is therefore growth of £30,000 and based on today's exchange rate ($1.73) that's an assessable amount $51,900.

    This amount is added to a person's marginal tax rate and taxed accordingly, so for a person with an MTR of 39% (once this amount has been added) then this is tax of around $20,241.

    If this scheme is transferred to an Australian (QROPS) scheme (allowable from age 55) then that tax can usually be mitigated to 15% so around $7,785 so a substantial saving (potentially depending on individual circumstances). Withdrawals from age 60 from Super are tax free in Australia.

    The downside of a transfer is that the monies become preserved under Australia rules and this means it's likely access will have to be deferred.

    Also there are some UK pension policy implications to consider.

    Essentially to access the full amount the way it is now done is that a lump sum of up to 25% is allowable known as a pension commencement lump sum and then the rest will go into what is termed drawdown. The lump sum is UK tax free however the remaining amount left in drawdown on withdrawal is recognised as income (even though effectively a full withdrawal of the remaining 75% is allowable in one go).

    The UK work on a PAYE system and so when the remaining 75% is withdrawn tax is deducted under that system. You may be able to arrange having that income paid gross if a tax resident of Australia as Australia typically have taxing rights on UK pension income under the DTA but would need to complete a HMRC form for this to occur, it used to be form FD2 but I'm not sure if this has changed now, the ATO also need to complete a section too I understand.

    Given that the remaining amount is then classified as income the ATO may then wish to look at taxing this accordingly even if it is being received as a lump sum as technically it is income and particularly if you have completed the above form (FD2?) requesting that the income is taxed in Australia.

    You may wish to explore these implications further prior to withdrawal (if you decide this is what you would prefer) and thus may wish to consider seeking a private ruling from the ATO in the first instance to ascertain their view on your situation.

    Regards

    Andy

     

    Edited by Andrew from Vista Financial

    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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