Taxation of Aus Super Withdrawal when resident in the UK

[MartinMwg]

Hi

When 67, assuming I am living permanently in the UK and receiving money from my Aus Super Fund, that money is taxed by the UK government. 

Does anyone know what the % is?

Also, would receiving income from my Aus Super fund affect UK State Pension payments?

What is the best way for receiving my Aus Super Payments in the UK? Ie paying less tax?

Thanks.

[Marisawright]

Do you mean as a lump sum, or as an income stream? 

Either way, as I understand it, there isn't a fixed percentage.   It's just treated as normal income.  So it will depend how much you've earned that year, what tax rate you will pay.

So for instance if you take a lump sum, that's just added to your income for that year which will catapult you into the highest tax bracket (45%).  That's why it's not really practical to take a lump sum!  

If you convert your super to an income stream (pension) in retirement, it will still be taxed as income -- but by that time, your income stream plus the UK pension will be your total income, so you'll be in a lower tax bracket.

Are you currently paying extra into your super?  If so, I would stop doing so immediately.  Paying into super reduces your tax now, but it's mainly worthwhile because you get the money tax-free at the end, and you're not going to get that.  So you'll be better off putting any surplus funds into investments instead, and look into starting a UK private pension.  

UK state pension is not means-tested, so your super will not affect your UK state pension.  

Edited January 6 by Marisawright

[InnerVoice]

10 hours ago, MartinMwg said:

Hi

When 67, assuming I am living permanently in the UK and receiving money from my Aus Super Fund, that money is taxed by the UK government. 

Does anyone know what the % is?

Also, would receiving income from my Aus Super fund affect UK State Pension payments?

What is the best way for receiving my Aus Super Payments in the UK? Ie paying less tax?

Thanks.

You mentioned in a previous post that you're still in Aus and intend to move back to the UK, but you didn't mention how old you are. If you're approaching 60 then it might be worth delaying the move until you are, so you get access your Aus super completely tax-free. You could take it in one lump sum and transfer it to the UK, where you could invest up to £20,000 year in tax-free ISAs both in yours and your wife's names. If you continue to work between being 60 and 67 then you could also make significant contributions to a UK pension fund, for which you'll receive tax relief at your marginal rate. Remember that once you're a UK tax resident, when you're 55 you can take a 25% lump sum tax-free from your UK private pension (if you have one). Unfortunately, if you're nowhere near 60 and intend to move back soon, then none of the aforementioned suggestions will be of much help.

As Marisa said, your UK state pension won't be affected because it isn't means tested. However, it's a taxable income stream so it will affect the amount of tax you pay overall, depending on how much income you have from other sources.

If large sums are involved here then it'd be a good idea to get some professional advice.

[Blue Manna]

11 hours ago, InnerVoice said:

You mentioned in a previous post that you're still in Aus and intend to move back to the UK, but you didn't mention how old you are. If you're approaching 60 then it might be worth delaying the move until you are, so you get access your Aus super completely tax-free. You could take it in one lump sum and transfer it to the UK, where you could invest up to £20,000 year in tax-free ISAs both in yours and your wife's names. If you continue to work between being 60 and 67 then you could also make significant contributions to a UK pension fund, for which you'll receive tax relief at your marginal rate. Remember that once you're a UK tax resident, when you're 55 you can take a 25% lump sum tax-free from your UK private pension (if you have one). Unfortunately, if you're nowhere near 60 and intend to move back soon, then none of the aforementioned suggestions will be of much help.

As Marisa said, your UK state pension won't be affected because it isn't means tested. However, it's a taxable income stream so it will affect the amount of tax you pay overall, depending on how much income you have from other sources.

If large sums are involved here then it'd be a good idea to get some professional advice.

Good advice. But one point I will add is that if you take the 25% lump sum from your UK pension, it severely limits the amount you can salary sacrifice later on. So you don't want to take the 25% until you are in a position where you will retire, or still be working but not want to overpay your pension any more.

[InnerVoice]

8 hours ago, Blue Manna said:

Good advice. But one point I will add is that if you take the 25% lump sum from your UK pension, it severely limits the amount you can salary sacrifice later on. So you don't want to take the 25% until you are in a position where you will retire, or still be working but not want to overpay your pension any more.

With all due respect I don't think that's correct. If you only take your tax-free lump sum (or part of it) and you haven't taken any income payments, you can still contribute the same amount to your UK private pension. However, once you take your first taxable income payment through drawdown, the amount you can then pay into money purchase pensions (e.g. personal, self-invested) is limited to £4,000 each tax year - but taking tax-free cash alone won’t affect that. 

What becomes limited is the total amount of tax-free money you can take after your first tax-free withdrawal. In total it can't be more than 25% of the value of your pension at that time, regardless of how much your pot grows in future. So you're right in that you probably wouldn't want start taking any tax-free sums until you're ready to retire, unless you needed the money for an emergency. However, if you knew you would be moving permanently to a country (like Australia) where your whole pension would be classed as an income stream, it may well be in your interest to take the 25% tax-free lump sum before you emigrated.

[Blue Manna]

20 hours ago, InnerVoice said:

With all due respect I don't think that's correct. If you only take your tax-free lump sum (or part of it) and you haven't taken any income payments, you can still contribute the same amount to your UK private pension. However, once you take your first taxable income payment through drawdown, the amount you can then pay into money purchase pensions (e.g. personal, self-invested) is limited to £4,000 each tax year - but taking tax-free cash alone won’t affect that. 

What becomes limited is the total amount of tax-free money you can take after your first tax-free withdrawal. In total it can't be more than 25% of the value of your pension at that time, regardless of how much your pot grows in future. So you're right in that you probably wouldn't want start taking any tax-free sums until you're ready to retire, unless you needed the money for an emergency. However, if you knew you would be moving permanently to a country (like Australia) where your whole pension would be classed as an income stream, it may well be in your interest to take the 25% tax-free lump sum before you emigrated.

I stand corrected. I didn't know that. I had thought it was the 25%, but you are quite right. As long as you don't take taxable income you can still contribute the full allowance.

[MartinMwg]

Thank you everyone for taking the time out to respond, it is very much appreciated.

It does seem a bit of a minefield.

Incidentally, I am 53 so a few years off retirement.

[Marisawright]

17 hours ago, MartinMwg said:

Thank you everyone for taking the time out to respond, it is very much appreciated.

It does seem a bit of a minefield.

How is it a minefield?    You can safely ignore the whole debate between InnerVoice and Blue Manna, because they're discussing UK private pensions, nothing to do with Australian superannuation.

Since you are so far off retirement, there's absolutely nothing you can do right now (other than cancelling any extra contributions you're currently making to super).   

Once you get to the UK, write to the super fund, tell them you're living overseas, and instruct them to cancel all insurances.  They're probably not valid if you're not in Australia, anyway. Then forget all about it until you are ready to retire. 

There's no point trying to work out tax minimisation strategies now because you can't do anything about it right now, and who know what the tax regime will be like by the time you do retire?

[Parley]

Stay in Australia until your preservation age which is 60. Declare yourself permanently retired.

Withdraw all your Super if you like and then move back to the UK.

Only 7 years so not that long.

Depends on your balance perhaps but if you have a lot in Super that is what I would be doing.

Edited January 11 by Parley

[Blue Manna]

1 hour ago, Parley said:

Stay in Australia until your preservation age which is 60. Declare yourself permanently retired.

Withdraw all your Super if you like and then move back to the UK.

Only 7 years so not that long.

Depends on your balance perhaps but if you have a lot in Super that is what I would be doing.

Just what I was about to say. Plus, could they go back to live in Australia for a holiday long enough to declare residency (6 months?) when they are around 65-67 to get a full Australian aged pension? 

[Marisawright]

28 minutes ago, Blue Manna said:

could they go back to live in Australia for a holiday long enough to declare residency (6 months?) when they are around 65-67 to get a full Australian aged pension? 

No.  You must be resident in Australia for 2 years, either before or after you claim the pension.  

So for instance, you could return to Australia 2 years before you're eligible for the pension, then stay until you claim it, then leave the next day -- and you'll get to keep the pension forever.

OR you could wait until you're of eligible age, arrive in Australia and claim it, but then you'll have to stay in the country for 2 full years. If you leave before the 2 years are up, you lose the pension.

Or anything in between.  But the 2 years is non-negotiable. 

Edited January 11 by Marisawright