Aus Super... take it, or leave it ?

[Don QuayPoly]

So, after much deliberation my wife and I have decided to return to the UK to be closer to friends/relations and grandchildren. I came to Oz 14 years ago and my wife is Australian with Right-of-Abode in the UK. We are both just 60 years old.

I would really appreciate any advice on the following-

My wife has a Defined Benefit super bringing in a regular tax free (in Aus) income every month which I believe she would be crazy to cash-in or alter in any way. So if we left it here (Aus) and transferred that monthly payment over to the UK each month that would I assume be taxable by the UK tax man. My question is - is this taxed in the normal way as income, or is it taxed at a higher rate. I've seen it mentioned on here that the tax man takes 30-40% ? 

Apart from the Defined Benefit, we also have a large some in our Defined Contribution super accounts, and I believe the common advice is to withdraw it all as a lump sum while still resident in Aus, before then transferring it over to the UK as "savings" which would be tax free.

My question is - is there anything to be gained by leaving some or all of it in Aus in the super account, or would it make financial sense to take the cash over as savings, then re-invest over in the UK ?

Thanks all .

Don

 

 

[Ken]

14 minutes ago, Don QuayPoly said:

So, after much deliberation my wife and I have decided to return to the UK to be closer to friends/relations and grandchildren. I came to Oz 14 years ago and my wife is Australian with Right-of-Abode in the UK. We are both just 60 years old.

I would really appreciate any advice on the following-

My wife has a Defined Benefit super bringing in a regular tax free (in Aus) income every month which I believe she would be crazy to cash-in or alter in any way. So if we left it here (Aus) and transferred that monthly payment over to the UK each month that would I assume be taxable by the UK tax man. My question is - is this taxed in the normal way as income, or is it taxed at a higher rate. I've seen it mentioned on here that the tax man takes 30-40% ? 

Apart from the Defined Benefit, we also have a large some in our Defined Contribution super accounts, and I believe the common advice is to withdraw it all as a lump sum while still resident in Aus, before then transferring it over to the UK as "savings" which would be tax free.

My question is - is there anything to be gained by leaving some or all of it in Aus in the super account, or would it make financial sense to take the cash over as savings, then re-invest over in the UK ?

Thanks all .

Don

 

 

Under the terms of the double taxation agreement between the UK and Australia Pensions are taxed where the recipient is resident. That means an Australian pension (Super) would be taxed in the UK once you return there. But there are no special tax rates it is just taxed as normal income and you still have a tax free threshold and then the lowest tax rate. The 30%-40% rates that people quote only apply where people have already used up all of their 0% and 20% thresholds on other income.

Yes you will want to withdraw you funds from Super while it's tax free to do so. If you withdraw funds from Super while resident in the UK the whole amount withdrawn is taxed as income as it is treated as a pension. If you invest the money in the UK (or in Australia for that matter - but then you have to deal with Australian tax as well as UK tax) you only have to pay tax on the amount the investment grows but the original capital you invested remains tax free.

If you put the money in an Australian bank account or somewhere else that only earn interest or royalties as a foreign resident you only have to pay a 10% withholding tax (make sure your bank knows when you become a foreign resident as if they don't withhold when they should it can be a pain to sort out) which you can reclaim from your UK tax due and won't have to do an Australian tax return. With other investments you may still need to file an Australian tax return and as a non-resident won't get a tax free allowance (but will still be able to deduct the tax paid on your UK tax return so that may not matter).

[Marisawright]

2 hours ago, Don QuayPoly said:

My wife has a Defined Benefit super bringing in a regular tax free (in Aus) income every month which I believe she would be crazy to cash-in or alter in any way. So if we left it here (Aus) and transferred that monthly payment over to the UK each month that would I assume be taxable by the UK tax man. My question is - is this taxed in the normal way as income,

Yes, it's just normal income like anything else, no special rates.  You may be confusing it with people who take a lump sum AFTER they've left Australia -- they get slugged with a big tax bill.  

2 hours ago, Don QuayPoly said:

we also have a large some in our Defined Contribution super accounts, and I believe the common advice is to withdraw it all as a lump sum while still resident in Aus, before then transferring it over to the UK as "savings" which would be tax free.

My question is - is there anything to be gained by leaving some or all of it in Aus in the super account

Yes, that is the most common advice.  Once it's all sitting in the bank in Australia, it's just cash and you can transfer it immediately without any tax implications. 

As for whether there's anything to gain by leaving some or all of it in your super account -- if you're 120% sure you're never coming back to Australia, then on the face of it, there doesn't seem much point.  However, do consider what you'll do with the lump sum if you take it.  Where will you invest it in the UK?  How long before you need to access it?  I imagine wherever you invest it in the UK, you'll have to pay tax on the interest.  Whereas while it's sitting in your Australian super account, there are no tax implications until you start drawing on it as a pension. So IMO it's not entirely straightforward.

[Ken]

On 08/06/2022 at 14:20, Marisawright said:

Yes, it's just normal income like anything else, no special rates.  You may be confusing it with people who take a lump sum AFTER they've left Australia -- they get slugged with a big tax bill.  

Yes, that is the most common advice.  Once it's all sitting in the bank in Australia, it's just cash and you can transfer it immediately without any tax implications. 

As for whether there's anything to gain by leaving some or all of it in your super account -- if you're 120% sure you're never coming back to Australia, then on the face of it, there doesn't seem much point.  However, do consider what you'll do with the lump sum if you take it.  Where will you invest it in the UK?  How long before you need to access it?  I imagine wherever you invest it in the UK, you'll have to pay tax on the interest.  Whereas while it's sitting in your Australian super account, there are no tax implications until you start drawing on it as a pension. So IMO it's not entirely straightforward.

You do need to consider whether or not they ping pong back to Australia but if they do they'll still only be paying tax on the interest which may be at a low or even 0% rate depending on how much their other income is. Drawing down their capital will still be tax free so the difference is only marginal. This is compared to the more likely scenario of being in the UK and drawing down capital in their Australia super account and being taxed on it.