UK 25% Tax free withdrawel

[neil gould]

I am 55 and live in Oz, still have a SIPP in UK

I now qualify for a tax free withdrawal of 25%

Is this cash taxable in Oz?

[Gbye grey sky]

My understanding is that the growth in the fund will be the taxable element though would welcome clarification from any accountants on here.

So, for example your fund was worth £100,000 when you migrated and it is now valued at £160,000.  So 25% (or £40,000) has grown by £15,000.  Convert £15,000 to current exchange rate (say 1.80) = $27,000.  So in this example $27,000 is taxable in Oz at your marginal rate even though you will have $72,000 to transfer over.

This is pertinent to me because my UK Sipp has grown by around £30,000 since I got here.  I wanted to transfer it to Oz but have baulked at an SMSF.  I am now 58 and am considering taking 25% but am hesitant because transferring it will put more dollars in my pocket in the long run.  There is tax on the growth if you transfer your pension too but it is on the whole amount at 10%.

Edited March 8, 2019 by Gbye grey sky

[neil gould]

thanks for that

 

[Alan Collett]

This is too detailed an issue to discuss on a forum.

I will only quickly mention the need to consider the Applicable Fund Earnings component of an overseas pension fund that is accessed when a tax resident of Australia.

I recommend having a no obligation conversation with a financial planner that specialises in this area.

Best regards.

[Andrew from Vista Financial]

Hi Neil

Very broadly and as Ggy has pointed out above the ATO typically will assess a foreign super benefit payment (a SIPP PCLS) on the growth since a person becomes resident known as the Applicable Fund Earnings (AFE). If the benefit payment is paid directly to a person then this AFE is typically assessed at a persons Marginal Tax Rate.

In terms of apportioning any AFE (ie by 25% as that is the amount of the pot taken) this is not the case as we understand it (unless immediately at the time the payment is made the remaining pot secures a lifetime income stream for instance a defined benefit scheme) in which case the growth of the whole scheme will be considered even though only 25% of the pot is withdrawn. That said the AFE cannot exceed the amount of benefit taken.

Happy to discuss further if you wish.

Regards Andy

[Alasdair]

This topic seems to be the closest to my situation I've seen so far...

Is anyone able to advise the tax situation in this case - My wife & I left our UK pensions in (separate) personal pensions in 1990 when we emigrated. We're not interested in moving these pensions out to Aus. More recently, we converted hers to a SIPP, and withdrew money to pay for a trip to the UK. There was no tax to pay on that (treated as income) because it was way under the relevant income tax thresholds and there's no other income to speak of. Did that trigger another tax liability based on the growth in the value of the whole fund? If so how would it be assessed? My wife hasn't worked for years and is over 55, so potentially regarded as retired.

Any clarification welcomed!

[Alan Collett]

8 hours ago, Alasdair said:

This topic seems to be the closest to my situation I've seen so far...

Is anyone able to advise the tax situation in this case - My wife & I left our UK pensions in (separate) personal pensions in 1990 when we emigrated. We're not interested in moving these pensions out to Aus. More recently, we converted hers to a SIPP, and withdrew money to pay for a trip to the UK. There was no tax to pay on that (treated as income) because it was way under the relevant income tax thresholds and there's no other income to speak of. Did that trigger another tax liability based on the growth in the value of the whole fund? If so how would it be assessed? My wife hasn't worked for years and is over 55, so potentially regarded as retired.

Any clarification welcomed!

Yes, this is quite possibly a situation requiring an Applicable Fund Earnings calculation for Aus tax purposes.

Best regards.

[Alasdair]

So taking Gbye grey sky's example

"So, for example your fund was worth £100,000 when you migrated and it is now valued at £160,000.  So 25% (or £40,000) has grown by £15,000.  Convert £15,000 to current exchange rate (say 1.80) = $27,000.  So in this example $27,000 is taxable in Oz at your marginal rate even though you will have $72,000 to transfer over." 

one step further, if only (say) £5,000 had been paid out of the fund, then as Andrew from Vista comments, is the taxable AFE the total growth in the fund (£60,000) but limited to the amount paid, ie £5,000?