Taking my super back to the UK.

[Sloth]

I have a question that I can't find a ready answer to.

I'm originally a UK citizen, and have been living and working in Tasmania since 2006, and became an Aus citizen in 2009. I'm now thinking of returning permanently to the UK. I am over 60.

I have read that in order to avoid UK tax, it's necessary to withdraw my super whilst still in Australia and send it back to the UK as savings.

Let's say I withdraw my super on 1 July 2022 so it's now just cash in my bank account, which I then transfer to my UK bank. I then finalise my other affairs in order to return home, and I leave Australia, arriving back in the UK on 1 September 2022.

By the end of the UK tax year on 5 April 2023, I will have been in the UK for more than 183 days, so I will be deemed to be a UK tax resident for the entire year from the preceding 6 April-this includes the date on which I withdrew my super prior to leaving Australia.

Does this have any UK tax implications for my super?

Do I need to elect for split year treatment in the year I return to the UK?

[Andrew from Vista Financial]

Hi there

Thanks for the question however I am a licensed Australian Financial (Tax) Adviser not a UK one so cannot provide advice in this area I am afraid.

However looking at your question....does this have any tax implications for my Super.

If you did as planned then when you arrive in the UK it would not be Super any longer it would be money in the bank along with any other money you have in the bank when you move back so I think it's unlikely to have any tax implications for your Super.

Regards

Andy.

[Sloth]

Thanks Andrew. It seems to be a grey area due to the HMRC residence test.

[Ken]

The circumstances you describe are one where split year tax treatment should apply. Put an X in box 3 of your SA-109 (which you need to complete as part of your Self-assessment tax return) and the date you returned in box 6. Split year tax treatment can only apply when you are UK resident under the HMRC residence test so it's not a grey area. You are a foreign tax resident prior to returning and a UK tax resident from the date of return.

Also to point out (although I think you are already aware) it's the date your funds leave your Super account that matters not the date you transfer it to the UK. Transfers from one bank account to another bank account are not taxable income or everyone would have to pay tax every time they took money in or out of their savings account!

Edited April 28, 2021 by Ken

[Sloth]

Thanks for your advice-I thought that would be the correct approach, but it's always good to have confirmation from somebody who knows!

[Marisawright]

50 minutes ago, Ken said:

The circumstances you describe are one where split year tax treatment should apply.

That's what I thought, Ken, but the OP's post made me doubt.  Thanks for clarifying!

[Parley]

2 hours ago, Ken said:

The circumstances you describe are one where split year tax treatment should apply. Put an X in box 3 of your SA-109 (which you need to complete as part of your Self-assessment tax return) and the date you returned in box 6. Split year tax treatment can only apply when you are UK resident under the HMRC residence test so it's not a grey area. You are a foreign tax resident prior to returning and a UK tax resident from the date of return.

Also to point out (although I think you are already aware) it's the date your funds leave your Super account that matters not the date you transfer it to the UK. Transfers from one bank account to another bank account are not taxable income or everyone would have to pay tax every time they took money in or out of their savings account!

Do you have to do that if you just sell your home in Australia and move back to the UK ?

This will be the same won't it. In Australia if you are retired and over your preservation age you can withdraw all your Super without restriction. Then it is just your money.

The OP might be selling a home too and just taking a large amount of money back. Home plus Super, maybe a couple million but should be no tax issues.

[Sloth]

My query was nothing to do with “taking a large amount of money back”, but related to HMRC’s rules around tax residency in the year I move back. 
I wanted to clarify my thoughts around moving my super and split year tax treatment. 
 

https://www.gov.uk/tax-foreign-income/residence

Edited April 28, 2021 by Sloth

[Marisawright]

56 minutes ago, Parley said:

Do you have to do that if you just sell your home in Australia and move back to the UK ?

This will be the same won't it. In Australia if you are retired and over your preservation age you can withdraw all your Super without restriction. Then it is just your money.

The OP might be selling a home too and just taking a large amount of money back. Home plus Super, maybe a couple million but should be no tax issues.

The OP was specifically asking about superannuation.  If you withdraw your lump sum while still legally resident in Australia, there's no restriction, it's just your money and you can do whatever you like with it, including sending it anywhere in the world.

Withdraw your lump sum after you've arrived in the UK, and the Inland Revenue will take a very large slice.

[Wanderer Returns]

26 minutes ago, Marisawright said:

If you withdraw your lump sum while still legally resident in Australia, there's no restriction, it's just your money and you can do whatever you like with it, including sending it anywhere in the world.

Would I be right in thinking that if left your super invested and drawdown after reaching preservation age, then you will never pay any tax as long as you stay resident in Australia? Whereas if you withdraw it all as cash and reinvested it elsewhere, then you'd have to pay tax on any income earned in your country of residence.

Hence, unless you're absolutely certain that you're going to leave Australia and never come back, you'd be very unwise to cash in all your super.

Edited April 28, 2021 by Wanderer Returns

[Marisawright]

29 minutes ago, Wanderer Returns said:

Would I be right in thinking that if left your super invested and drawdown after reaching preservation age, then you will never pay any tax as long as you stay resident in Australia? 

Yes, super is tax-free in Australia.

30 minutes ago, Wanderer Returns said:

Whereas if you withdraw it all as cash and reinvested it elsewhere, then you'd have to pay tax on any income earned in your country of residence.Hence, unless you're absolutely certain that you're going to leave Australia and never come back, you'd be very unwise to cash in all your super.

Yes, BUT the difficulty is that if you do decide you're never going back, and you want to take a lump sum, you'll be faced with losing over a third of it to the Inland Revenue. 

You'd be left with only one option, which would be to convert your super to a pension.   It would still be taxable as normal income in the UK but not as bad as the lump sum.

[Parley]

1 hour ago, Marisawright said:

The OP was specifically asking about superannuation.  If you withdraw your lump sum while still legally resident in Australia, there's no restriction, it's just your money and you can do whatever you like with it, including sending it anywhere in the world.

 

Yes that is what he said he was going to do. And there are no issues. Similar to just selling your house and then sending the money back.

[Wanderer Returns]

10 hours ago, Marisawright said:

Yes, super is tax-free in Australia.

Yes, BUT the difficulty is that if you do decide you're never going back, and you want to take a lump sum, you'll be faced with losing over a third of it to the Inland Revenue. 

You'd be left with only one option, which would be to convert your super to a pension.   It would still be taxable as normal income in the UK but not as bad as the lump sum.

Good points. And also, if you cashed it all in before leaving Australia you could open an ISA as soon as you arrived back in the UK.

If you arrived at the beginning of April, you could deposit 40 grand within a week!

[Ken]

23 hours ago, Parley said:

Do you have to do that if you just sell your home in Australia and move back to the UK ?

This will be the same won't it. In Australia if you are retired and over your preservation age you can withdraw all your Super without restriction. Then it is just your money.

The OP might be selling a home too and just taking a large amount of money back. Home plus Super, maybe a couple million but should be no tax issues.

Do you have to do what? Split year? You should unless you want to pay tax in the UK on everything you earned in the first part of the year. If you don't tell HMRC this year is a split year they'll come back to you about last year thinking they're due some tax from that year!

The important thing to remember if you have a home in Australia is to sell it before you leave the country because the Capital gain on the sale of your home for an Australian resident is tax free (some exceptions if you have a huge amount of land or business use of part of your premises but that's the general case). Unfortunately foreign residents don't get any concessions on CGT in Australia so the whole amount is taxable so selling after you leave is very expensive.

Yes you'll be able to withdraw all your Super without restriction (once you meet the requirements to do so) even if you are staying in Australia, but if you leave it in Super any further growth is also tax free whereas alternative investments (including just getting bank interest on it) are taxed. It is just your money but don't waste it.

[Rawkus]

I'm 42 years old and looking into paying more into my super but before I commit to putting more money in:

As I don't know where I will be at retirement age, can anyone advise me on if I move back to UK before I can take out my Super, how you avoid UK tax?

If I was in UK I would set up a private pension which has tax incentives. Here, I'm not aware of anything like that so if I'm paying into super I want to know if I will be taxed in UK.

I want my money to grow as it would in a pension fund.

 

Any advice would be much appreciated. 

 

Thanks

 

David

 

[Marisawright]

24 minutes ago, Rawkus said:

I'm 42 years old and looking into paying more into my super but before I commit to putting more money in:

As I don't know where I will be at retirement age, can anyone advise me on if I move back to UK before I can take out my Super, how you avoid UK tax?

There would be no way to avoid UK tax on your super, if  you return to the UK before you reach 'preservation age' (currently 60).

If you can commit to staying in Australia until AFTER you reach preservation age, then you'd have one option:  withdraw all your super in one lump sum and put it in a bank account while you are still living in Australia.  Once that's done, it's just money in the bank, and you can safely depart and transfer the money with no tax implications.  

The risk is that they could increase the preservation age (they've done it before, from 55 to 60).  So you could be planning based on age 60, and then they'd increase it to 65, and then you're stuck in Australia for another 5 years, which might not suit you. 

To be honest, if you can't see yourself growing old in Australia, I'd be thinking very seriously about moving home sooner rather than later. We've had a few members (including me) who thought of retiring in the UK after a working life in Australia, and discovered it just wasn't affordable. If you want to retire in the UK, you really need to get back there in your late 40s/early 50s to get yourself re-established, get a pension plan going etc.  

 

[Rawkus]

 

30 minutes ago, Marisawright said:

There would be no way to avoid UK tax on your super, if  you return to the UK before you reach 'preservation age' (currently 60).

If you can commit to staying in Australia until AFTER you reach preservation age, then you'd have one option:  withdraw all your super in one lump sum and put it in a bank account while you are still living in Australia.  Once that's done, it's just money in the bank, and you can safely depart and transfer the money with no tax implications.  

The risk is that they could increase the preservation age (they've done it before, from 55 to 60).  So you could be planning based on age 60, and then they'd increase it to 65, and then you're stuck in Australia for another 5 years, which might not suit you. 

To be honest, if you can't see yourself growing old in Australia, I'd be thinking very seriously about moving home sooner rather than later. We've had a few members (including me) who thought of retiring in the UK after a working life in Australia, and discovered it just wasn't affordable. If you want to retire in the UK, you really need to get back there in your late 40s/early 50s to get yourself re-established, get a pension plan going etc.  

 

Thanks for the advice.

The main reason I'm not sure where I will end up is because of retirement age.

I thought it would be easier there because of private pensions and the state pension that I'm still contributing to.

If I could stay here I'd like to.. but have no idea what the best option is to build a retirement fund. Maybe my super account isn't very good but they all seem to just take fees and the money isn't growing.

[Marisawright]

46 minutes ago, Rawkus said:

I thought it would be easier there because of private pensions and the state pension that I'm still contributing to.

If I could stay here I'd like to.. but have no idea what the best option is to build a retirement fund. Maybe my super account isn't very good but they all seem to just take fees and the money isn't growing.

There's no reason your super account can't perform just as well as a private pension in the UK.   Super funds here are just managed funds, same as anywhere else. The advantage is that you can avoid tax by salary-sacrificing into super, and when you get the pension at the end, it's totally tax-free (unlike the UK). 

If your super fund isn't performing well, you're probably in a bad super fund.  There's a lot of bad ones out there, many of them big names (the banks are some of the worst offenders). It's very, very easy to change your super fund.  Just ring the fund you'd like to switch to, and they'll do most of the work.  

https://www.ato.gov.au/Calculators-and-tools/YourSuper-comparison-tool/

https://www.canstar.com.au/superannuation/

I'm a big fan of the industry super funds.  They usually have lower fees, which is always a good start.  Although each industry has its own fund (I was in construction so I'm with CBus, for instance), you can join any fund you like.  Australian Super and Hostplus are often recommended. 

You'll still get your UK pension when you retire here, although it'll be frozen at the same rate forever (but that's due to a breakdown in the agreement between Australia and the UK and might be fixed by the time you retire).   You'll also get the Australian govt pension on top of that, although as you probably know, that's means-tested. 

[Rawkus]

Thanks for the links Marisa,

So I can get the UK and Aus pension if in Australia, the UK state pension wouldn't prevent me from qualifying for the Aus aged pension?

If taxed on superannuation that is sent over to the UK, is it taxed like any other income where you have an allowance of what you can earn before taxed?

 

 

 

[Marisawright]

22 minutes ago, Rawkus said:

Thanks for the links Marisa,

So I can get the UK and Aus pension if in Australia, the UK state pension wouldn't prevent me from qualifying for the Aus aged pension?

If taxed on superannuation that is sent over to the UK, is it taxed like any other income where you have an allowance of what you can earn before taxed?

 

 

 

Your UK pension would be treated like any other income when assessing your entitlement to the Aussie pension, so yes you can get both. 

If you convert your super to a pension then it is lumped in with whatever other income you have and taxed like normal. 

If you take it as a lump sum, that’s when it can cost you a lot because the whole amount is treated as income. So let’s say you had 100,000 in a lump sum, you’d pay tax as if you had earned 100,000 that tax year and be pushed up into a very high tax bracket

[Ken]

6 hours ago, Marisawright said:

There's no reason your super account can't perform just as well as a private pension in the UK.   Super funds here are just managed funds, same as anywhere else. The advantage is that you can avoid tax by salary-sacrificing into super, and when you get the pension at the end, it's totally tax-free (unlike the UK). 

If your super fund isn't performing well, you're probably in a bad super fund.  There's a lot of bad ones out there, many of them big names (the banks are some of the worst offenders). It's very, very easy to change your super fund.  Just ring the fund you'd like to switch to, and they'll do most of the work.  

https://www.ato.gov.au/Calculators-and-tools/YourSuper-comparison-tool/

https://www.canstar.com.au/superannuation/

I'm a big fan of the industry super funds.  They usually have lower fees, which is always a good start.  Although each industry has its own fund (I was in construction so I'm with CBus, for instance), you can join any fund you like.  Australian Super and Hostplus are often recommended. 

You'll still get your UK pension when you retire here, although it'll be frozen at the same rate forever (but that's due to a breakdown in the agreement between Australia and the UK and might be fixed by the time you retire).   You'll also get the Australian govt pension on top of that, although as you probably know, that's means-tested. 

Super funds and UK pensions both had a bad year last year but you can expect both to bounce back. 

Super funds are taxed when the money goes in but not when the money comes out (if you are in Australia). So that can make the balance look less in the early years (the fund has to grow 17.6% just so the balance covers the 15% tax that's been taken off the amount paid in). UK pension funds have no taxes when the money goes in but only 25% is tax free (if you are in the UK) when taken out.