Taxation on a transferred pension

[dilby]

Hi all -

I’m an Aussie dual national that had lived in the U.K. all my working life. I’ve got a pension that I’ve built up through my own business and know that if I cash this out in retirement I’d generally get 25% tax free and then be taxed on the rest according to normal income tax (which is a good old whack). However if I moved to aus and transferred my pension to an Australia super fund does this mean I’d avoid this tax? I’ve read up and can see that you don’t pay tax for super withdrawals unless it’s an ‘untaxed’ fund which as far as I can tell is quite rare and more for public servants. Can anyone help on this at all? Might be another reason to head back!

ps. Please note im not referring to the state pension here but my own personal contribution pension.

Thanks!

[Marisawright]

The 25% tax-free only applies in the UK.  If you take that lump sum while you are resident in Australia, you'll be taxed on it. 

It is theoretically possible to transfer your UK pension to an Australian super fund, but finding one that will accept the money is another question.  Also, it's vital to follow the process exactly, because if you make one small mistake, you can lose all the taxation benefits and find yourself paying a whopping tax on the transferred funds anyway (and don't rely on the super fund to know what they're doing). For that reason, don't even attempt it without professional help.  @Andrew from Vista Financial is an expert and I'm sure he will give you a quote.

I certainly wouldn't even think of doing it until you are 100% sure you are going to live in Australia for the rest of your life, come what may, because I don't think there's any mechanism to transfer your super back to a UK pension fund if you change your mind.

[Alan Collett]

Hi @dilby.

Have a look at the Applicable Fund Earnings tax provisions - in essence you (or the receiving super fund if all of the UK fund is transferred into the Aus super fund) will be taxed on the growth in the value of the UK scheme from the time you became a tax resident of Australia.

If you are receiving monies personally from the UK scheme the AFE provisions still apply, but the UK scheme administrators will deduct tax on the sum in excess of the 25% tax free component under PAYE, unless you can engineer a NT (No Tax) PAYE Coding by leveraging the applicable provision of the UK-Australia Tax Treaty.

Yes, a transfer to an Australian super fund can avoid all of the above, but it is a much tighter regime for pension transfers out of the UK these days.

Andy at Vista can comment, and you are very welcome to ping a private message to me as well.

Best regards.

[Andrew from Vista Financial]

On 20/09/2020 at 07:29, dilby said:

Hi all -

I’m an Aussie dual national that had lived in the U.K. all my working life. I’ve got a pension that I’ve built up through my own business and know that if I cash this out in retirement I’d generally get 25% tax free and then be taxed on the rest according to normal income tax (which is a good old whack). However if I moved to aus and transferred my pension to an Australia super fund does this mean I’d avoid this tax? I’ve read up and can see that you don’t pay tax for super withdrawals unless it’s an ‘untaxed’ fund which as far as I can tell is quite rare and more for public servants. Can anyone help on this at all? Might be another reason to head back!

ps. Please note im not referring to the state pension here but my own personal contribution pension.

Thanks!

Hi Dilby

You could potentially enjoy a more tax efficient retirement in Australian than the UK regards your pension from the sounds of it however as Alan mentions the transfer regime is tighter nowadays, this is generally down to age and contribution caps for private pensions.

Regards age, you would have to be over age 55 in the first instance to consider a transfer and secondly a person can only contribute typically $300,000 in one go without breaching (excluding growth (AFE)), this is based on using up the current financial year plus two future years of allowance.

Therefore in cases such as these (assuming pot size greater than $300,000 and age 55 and above) a strategy to consider could be to access the 25% and then progressively transfer the residual amount within the contribution cap allowance every three years (depending on pot size and age etc).

There's obviously still a lot more to it than mentioned above and professional advice is always recommended in this area but should offer some food for thought.

Regards

Andy    

  

Edited September 21, 2020 by Andrew from Vista Financial