HOME   |  FINANCIAL SERVICES  |   FAQ   |  ABOUT US  |   CONTACT US
Get Free Advice
 

Taxation Case Study

The Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014

Pension funds in the UK are not taxed by the UK Government and Brits can save up to £40,000 p.a.for their retirement from non-taxable income.  

If you are a British ex-pat, or a returning Kiwi, now that you are living in NZ your UK pension funds are called foreign investments. These funds have always been taxable. The tax the UK charges, or doesn't charge, is irrelevant to the fact that you must pay tax in NZ on world wide income (including your UK pensions); not just NZ income. 

You may have been unaware of this.  IRD says it was always the case but the rules were complicated.  This is why the new taxation legislation came into force on 1 April 2014; The Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014.  One of the purposes of this legislation was to make the tax rules regarding UK pensions much simpler.   

A tax specialist once said to the author (A Renfrew) that when IRD say the rules are complicated they can't understand the rules either.

You now have three options
  1. Do nothing and take a pension at retirement.  Your pension funds will be fully taxable – 100%.
  2. Transfer your pension and pay the required tax based on the IRD table at the end of this paper.
  3. If you are able to show the value of your pension funds in 2006, compare the values now and demonstrate that you have suffered a loss you will not have a tax liability.  If you take the exchange rate into account there may be a loss due to the decline of the UK pound over this period.  Most people tell me they know for a fact that their pensions have increased significantly in value and therefore showing a loss is not an option.
How much tax are you likely to have to pay on your transferred pension funds?

Example

Fred's pension

Fred who has been living in NZ for 8 years wishes to transfer a pension with a value of $150,000.
During the first four years he was a a transitional tax resident and did not need to pay tax on his pension funds in the UK. He has a four year tax liability. The table below shows that the tax obligation for four years is based on 18.6% of the total amount of the transferred pension.  Based on $150,000 18.6% is $27,900.

Fred's marginal tax rate is 19.5%.  His tax liability is $5,440.50.

NOTE: If Fred waited until he retired and chose to receive a pension payable from the UK he would have to pay tax on 100% of his pension funds. 

The IRD say there are no changes to UK pensions paid as pensions.  They are already fully taxable (100% of the money is taxed).  This has always been the case.  The only change is that IRD is now determined to recover tax that hasn't been paid by the majority of British ex-pats living in NZ who have UK pension funds.

When does the tax have to be paid?

You don't have to pay the tax immediately. The tax liability on your transferred funds will be considered additional income in the tax year that your funds were transferred.  If you transferred your funds in, say June, you would state in your tax return for the following tax year ending 31 March how much additional income your received based on the percentage of the pension that is taxable.  In the case of the person above with a four year tax liability there was additional income of $27,900 (18.6% of the transferred funds).
 

The table below illustrates the taxation increments.

 
Schedule Year
Schedule Year Fraction
Schedule Year
Schedule Year Fraction
1
4.76%
14
60.27%
2
9.45%
15
64.08%
3
14.06%
16
67.84%
4
18.60%
17
71.53%
5
23.07%
18
75.17%
6
27.47%
19
78.75%
7
31.80%
20
82.28%
8
36.06%
21
85.74%
9
40.26%
22
89.16%
10
44.39%
23
92.58%
11
48.45%
24
95.58%
12
52.45%
25
99.08%
13
56.39%
26+
100%


 
Summarised by:
 
Alison Renfrew, CLU, CFP
Authorised Financial Adviser, FSP35961
UK pension Transfer Specialist
 
October 2013

 
Disclaimer:
We are not tax specialists, Alison Renfrew, AFA, CFP, CLU recommends you seek advice from a specialist tax adviser.  Please request a referral to one if required. 
While every endeavour has been made to supply accurate, up-to-date information, errors and omissions may occur.  Accordingly Lyford Asset Management Limited, the directors, shareholders, advisers and employees accept no responsibility for any loss to any person (in any form whatsoever) that arises from the use of, or reliance on, the information.
 
Copyright © 2013 Lyford Asset Management Limited

ABOUT US

Lyfords is an investment management & financial services company managed and run by Alison & Richard Renfrew. The company values individual treatment, experienced advice and has a strong code of ethics across all of its services from financial advice through to retirement planning & pension transfers.

Learn More
 

CONTACT US

0800 4 LYFORDS
0800 459 367
Lyfords UK Pension Transfer
174 Hutt Road, Petone
Lower Hutt 5012