Tax on QSuper Lump Sum in the UK

[Del]

Hi, I’m 62 and plan on closing my QSuper account and taking the whole amount as a lump sum while still in Australia and then a couple of months later retiring to the UK.

My question is will I be taxed on the cash lump sum when I arrive in the UK or is it classed as savings from my Australian bank account into a UK bank account?

Thanks for your help.

[Marisawright]

1 hour ago, Del said:

Hi, I’m 62 and plan on closing my QSuper account and taking the whole amount as a lump sum while still in Australia and then a couple of months later retiring to the UK.

My question is will I be taxed on the cash lump sum when I arrive in the UK or is it classed as savings from my Australian bank account into a UK bank account?

If you cash out your super, and it's sitting in an Australian bank account BEFORE you move to the UK, then it's just savings.

[InnerVoice]

5 hours ago, Del said:

Hi, I’m 62 and plan on closing my QSuper account and taking the whole amount as a lump sum while still in Australia and then a couple of months later retiring to the UK.

My question is will I be taxed on the cash lump sum when I arrive in the UK or is it classed as savings from my Australian bank account into a UK bank account?

Thanks for your help.

Hi @Del, good luck with your move back to the UK. What made you decide to move back?

[paulhand]

6 hours ago, Marisawright said:

If you cash out your super, and it's sitting in an Australian bank account BEFORE you move to the UK, then it's just savings.

I’d be taking some professional advice particularly in regards to tax years and tax residency (or residencies) in the year that the OP moves. One for @Alan Collett

[Del]

Thanks for the advice everyone.  
 

Alan, is there anything you can add?

[Marisawright]

8 hours ago, paulhand said:

I’d be taking some professional advice particularly in regards to tax years and tax residency (or residencies) in the year that the OP moves. One for @Alan Collett

So are you saying that it won't be treated as savings, or are you thinking about the tax due on interest earned by the savings?

[InnerVoice]

47 minutes ago, Marisawright said:

So are you saying that it won't be treated as savings, or are you thinking about the tax due on interest earned by the savings?

As I understand it you need to ensure that you're not deemed a UK tax resident retrospectively before you've cashed in your super, due to the overlap between the two tax systems.

I was at an expat gathering a few months ago and coincidentally there was a couple (mid 60s) doing exactly what the OP intends to do. They'd been advised by their accountant that to avoid any complications they should cash in their Aussie super before 5th April (end of UK tax year), then sell up and leave Australia permanently between 6th April and 30th June. That way your Aussie super is just cash before the start of the new UK tax year, so the HMRC cannot class it as income when you complete your tax return at the end of your first year back. You will have also left Australia permanently before the start of the new tax year here, so you'll be straight with the ATO once you've completed your last return, unless you choose to leave the funds in an Australian savings account earning interest.

[Blue Manna]

Life would be simpler if the UK and Australian tax years were in sync. Although it has worked to my advantage before, I can imagine it could easily work against you.

[Ken]

6 hours ago, InnerVoice said:

As I understand it you need to ensure that you're not deemed a UK tax resident retrospectively before you've cashed in your super, due to the overlap between the two tax systems.

I was at an expat gathering a few months ago and coincidentally there was a couple (mid 60s) doing exactly what the OP intends to do. They'd been advised by their accountant that to avoid any complications they should cash in their Aussie super before 5th April (end of UK tax year), then sell up and leave Australia permanently between 6th April and 30th June. That way your Aussie super is just cash before the start of the new UK tax year, so the HMRC cannot class it as income when you complete your tax return at the end of your first year back. You will have also left Australia permanently before the start of the new tax year here, so you'll be straight with the ATO once you've completed your last return, unless you choose to leave the funds in an Australian savings account earning interest.

Your first year back doesn't begin until you return. That approach only makes sense if HMRC's power to deem you resident was restricted to the period between the beginning of the tax year and the date you returned. It isn't. If they've got grounds to deem you resident (such as a home in the UK available for you to live in - meaning one that isn't rented out) they're not restricted to the current tax year but can apply it to any years that the grounds existed. If they don't have any grounds to deem you resident, then they can't.

Edited March 17 by Ken

[Del]

Hi Ken, I don’t own a property in the UK, I would be staying with a relative for a couple of months when I arrive before buying.  

I would also be living off my savings so no actual income as far as the tax office is concerned apart from interest on savings, which wouldn’t come anywhere near the $10,000 the tax office says is the figure to go by to do a self assessment return.

So, I’m hoping my cashed out Australian  Superannuation doesn’t need to be included in a self assessment return as I won’t be a UK resident when I cash it in.

What are your thoughts?

Thanks

[Marisawright]

54 minutes ago, Del said:

Hi Ken, I don’t own a property in the UK, I would be staying with a relative for a couple of months when I arrive before buying.  

I would also be living off my savings so no actual income as far as the tax office is concerned apart from interest on savings, which wouldn’t come anywhere near the $10,000 the tax office says is the figure to go by to do a self assessment return.

So, I’m hoping my cashed out Australian  Superannuation doesn’t need to be included in a self assessment return as I won’t be a UK resident when I cash it in.

I think the concern is that your super was an investment that made money, so there might be some liability for tax on the profits made within the fund before you cashed out. 

I'm surprised that's even a consideration, as I am 99% sure (and Ken has confirmed) that the UK taxman can't tax you on any profits earned before you were legally resident in the UK, even if you arrive in the middle of the tax year. 

I'm guessing the accountant who gave that advice, wasn't experienced in international tax and was erring on the safe side.

[paulhand]

10 hours ago, Marisawright said:

So are you saying that it won't be treated as savings, or are you thinking about the tax due on interest earned by the savings?

I was trying to suggest the point that @InnerVoicemade far more eloquently, whilst also trying to avoid giving tax advice! 

[InnerVoice]

5 hours ago, Del said:

Hi Ken, I don’t own a property in the UK, I would be staying with a relative for a couple of months when I arrive before buying.  

I would also be living off my savings so no actual income as far as the tax office is concerned apart from interest on savings, which wouldn’t come anywhere near the $10,000 the tax office says is the figure to go by to do a self assessment return.

So, I’m hoping my cashed out Australian  Superannuation doesn’t need to be included in a self assessment return as I won’t be a UK resident when I cash it in.

What are your thoughts?

Thanks

You could always consider paying for advice if all the free advice you've received already hasn't provided a comprehensive answer to your query. Just saying.

[Nemesis]

1 hour ago, InnerVoice said:

You could always consider paying for advice if all the free advice you've received already hasn't provided a comprehensive answer to your query. Just saying.

I tried to do that, but the respected (??) company I spoke to basically lost all interest when they discovered I had under $500k. 

So I spent some hours on the internet, talked with an advisor at my UK bank & just withdrew the lot into savings, then transferred it all to a UK bank account as "savings" before I left Australia. I didn't have any property or assets in the UK before I arrived so my tax residency was very clear.  I was even still doing my normal job in Oz when the money was moved. 

[Del]

Nemesis, thanks for your response, I’m finding the exact same thing as you re professional advice and my thoughts are to go with my plan and cash out my super and transfer it as savings before leaving.

Its a very confusing issue especially around split year tax self assessment.

Do you mind if I ask when you returned and if you had to complete a split year tax assessment.

Thanks to everyone for your advice, this is certainly a hot topic.

[Nemesis]

32 minutes ago, Del said:

Nemesis, thanks for your response, I’m finding the exact same thing as you re professional advice and my thoughts are to go with my plan and cash out my super and transfer it as savings before leaving.

Its a very confusing issue especially around split year tax self assessment.

Do you mind if I ask when you returned and if you had to complete a split year tax assessment.

Thanks to everyone for your advice, this is certainly a hot topic.

I moved back last March, the money moved the month before, while I was still working in Oz, renting there etc. 

Didn't have to do a UK return as I had only been back two weeks, so had no UK income or anything, I was just unemployed. Even though I'm working a bit now I'm still below the tax threshold. I just did the usual ATO return in July, but in my departure date and told them I wouldn't be doing another one - ever! That was a good feeling   

[InnerVoice]

13 hours ago, Nemesis said:

I tried to do that, but the respected (??) company I spoke to basically lost all interest when they discovered I had under $500k. 

So I spent some hours on the internet, talked with an advisor at my UK bank & just withdrew the lot into savings, then transferred it all to a UK bank account as "savings" before I left Australia. I didn't have any property or assets in the UK before I arrived so my tax residency was very clear.  I was even still doing my normal job in Oz when the money was moved. 

I recall you'd had a poor experience in that regard which must've been frustrating. Hopefully it was an exception and most financial advisors are a little more helpful, even if you aren't exactly minted.

If the OP has a small amount in his super (e.g. $100k) then cashing it in before leaving Australia would make sense, just as you have done. Whilst not to be sniffed at, £50-60k isn't a huge sum of money in the grand scheme of things. By the time you've factored into the cost of moving back etc, what's left over could probably be invested into an ISA over a couple of years.

However, if we're talking about a significant amount then 'cash and run' might not be the best course of action. Assuming the OP doesn't intend to work when he returns to the UK, he'll be able to use his UK personal allowance which would be approximately £63,000 over 5 years. He could take a smaller lump sum from his super and then draw the rest as an income stream, and still pay no (or very little) tax in the UK. That way his super would stay invested, with the likelihood of producing better returns. Also, there wouldn't be a large cash balance that would require investment, plus the need to spread it across different banks for security if the amount was greater than £85,000 (FSCS threshold).

I mentioned 5 years because the OP said he was 62, and I assume he will be entitled to a full or part UK state pension at 67, so that's another income stream to take into consideration. That's why I suggested seeking professional advice if his query hasn't already been answered by previous comments in this thread.

[Nemesis]

8 hours ago, InnerVoice said:

I recall you'd had a poor experience in that regard which must've been frustrating. Hopefully it was an exception and most financial advisors are a little more helpful, even if you aren't exactly minted.

If the OP has a small amount in his super (e.g. $100k) then cashing it in before leaving Australia would make sense, just as you have done. Whilst not to be sniffed at, £50-60k isn't a huge sum of money in the grand scheme of things. By the time you've factored into the cost of moving back etc, what's left over could probably be invested into an ISA over a couple of years.

However, if we're talking about a significant amount then 'cash and run' might not be the best course of action. Assuming the OP doesn't intend to work when he returns to the UK, he'll be able to use his UK personal allowance which would be approximately £63,000 over 5 years. He could take a smaller lump sum from his super and then draw the rest as an income stream, and still pay no (or very little) tax in the UK. That way his super would stay invested, with the likelihood of producing better returns. Also, there wouldn't be a large cash balance that would require investment, plus the need to spread it across different banks for security if the amount was greater than £85,000 (FSCS threshold).

I mentioned 5 years because the OP said he was 62, and I assume he will be entitled to a full or part UK state pension at 67, so that's another income stream to take into consideration. That's why I suggested seeking professional advice if his query hasn't already been answered by previous comments in this thread.

I am hoping my experience was unusual, that's the reason I won't name the company, suffice to say it was quite clear us peasants aren't really worth the large companies spending time on us!

I'd never give anyone advice on what to do with their own super (or money in general), cos everyone's situation is unique; I can only outline what I did and the fact I managed it without having to pay for help in the end. Suited me, as I had reasons for having to come back on a short timeline, and while in the long run it might well have made more financial sense to stay in Australia longer, mentally, emotionally and even physically I think departing when I did was the best route, and so I had to do the best I could with the money at the time. 

 

[Marisawright]

20 hours ago, InnerVoice said:

I recall you'd had a poor experience in that regard which must've been frustrating. Hopefully it was an exception and most financial advisors are a little more helpful, even if you aren't exactly minted.

I have to admit, I had a similar experience as Nemesis with a financial adviser.  It might be better now, because of the ban on financial advisers taking commissions from the funds they sell.  However, that means they now charge a flat fee, which is a few thousand dollars, and some people baulk at that. 

I feel as though the OP's question -- will he be taxed on the lump sum if he withdraws it before he leaves - has been answered.  It sounds like you're talking about a much bigger question, i.e., is it really a good idea to withdraw the lot?  

I think there's a lot of strong reasons why it's a bad idea to withdraw the whole lot if you're staying in Australia in your retirement.  After all, the minute you take it out of super, you've got to put it in some kind of investment (even if it's just a bank account) and suddenly you're earning taxable interest.  And there's all that decision-making about how and where to invest. Not to mention the temptation to treat yourself to something with some of that lump sum, which you may regret when the money runs out later.

It gets a lot more complicated if you're thinking of moving overseas, due to exchange rate risks, tax differences between countries etc.  For that reason, I think he'd need to consult someone like Andrew from Vista, who's got experience of how moving between countries affects things like tax and pensions. Ordinary financial advisers either here or in the UK wouldn't know the complexities. 

[InnerVoice]

8 hours ago, Marisawright said:

I have to admit, I had a similar experience as Nemesis with a financial adviser.  It might be better now, because of the ban on financial advisers taking commissions from the funds they sell.  However, that means they now charge a flat fee, which is a few thousand dollars, and some people baulk at that. 

I feel as though the OP's question -- will he be taxed on the lump sum if he withdraws it before he leaves - has been answered.  It sounds like you're talking about a much bigger question, i.e., is it really a good idea to withdraw the lot?  

I think there's a lot of strong reasons why it's a bad idea to withdraw the whole lot if you're staying in Australia in your retirement.  After all, the minute you take it out of super, you've got to put it in some kind of investment (even if it's just a bank account) and suddenly you're earning taxable interest.  And there's all that decision-making about how and where to invest. Not to mention the temptation to treat yourself to something with some of that lump sum, which you may regret when the money runs out later.

It gets a lot more complicated if you're thinking of moving overseas, due to exchange rate risks, tax differences between countries etc.  For that reason, I think he'd need to consult someone like Andrew from Vista, who's got experience of how moving between countries affects things like tax and pensions. Ordinary financial advisers either here or in the UK wouldn't know the complexities. 

I agree on all points. The OP didn't provide much information about their circumstances but hopefully we've provided some helpful information between us so he can move forward, or seek professional advice if required.

[Ken]

On 18/03/2024 at 15:06, InnerVoice said:

I recall you'd had a poor experience in that regard which must've been frustrating. Hopefully it was an exception and most financial advisors are a little more helpful, even if you aren't exactly minted.

If the OP has a small amount in his super (e.g. $100k) then cashing it in before leaving Australia would make sense, just as you have done. Whilst not to be sniffed at, £50-60k isn't a huge sum of money in the grand scheme of things. By the time you've factored into the cost of moving back etc, what's left over could probably be invested into an ISA over a couple of years.

However, if we're talking about a significant amount then 'cash and run' might not be the best course of action. Assuming the OP doesn't intend to work when he returns to the UK, he'll be able to use his UK personal allowance which would be approximately £63,000 over 5 years. He could take a smaller lump sum from his super and then draw the rest as an income stream, and still pay no (or very little) tax in the UK. That way his super would stay invested, with the likelihood of producing better returns. Also, there wouldn't be a large cash balance that would require investment, plus the need to spread it across different banks for security if the amount was greater than £85,000 (FSCS threshold).

I mentioned 5 years because the OP said he was 62, and I assume he will be entitled to a full or part UK state pension at 67, so that's another income stream to take into consideration. That's why I suggested seeking professional advice if his query hasn't already been answered by previous comments in this thread.

I find it curious that you are concerned about spreading the investment between banks due to the FSCS threshold, yet you seem happy to leave it all in one Super fund despite a Super fund having no government guarantee at all.

[Alan Collett]

 

On 16/03/2024 at 17:26, Del said:

Hi, I’m 62 and plan on closing my QSuper account and taking the whole amount as a lump sum while still in Australia and then a couple of months later retiring to the UK.

My question is will I be taxed on the cash lump sum when I arrive in the UK or is it classed as savings from my Australian bank account into a UK bank account?

Thanks for your help.

We'll be happy to send a no obligation fee quote to you for giving you a tax opinion as to strategy in respect of drawing your super monies.

If of interest please feel able to ping an email to me at my bdh Tax email address.

Best regards.