hatman12

I emigrated to Australia on a four year temporary visa in 2006. I fully intended to make a permanent home in Oz, so I transferred my UK pension Fund using the QROPS system.

However life in OZ didn't quite work out as planned and I now live in South Korea. My Australian visa expired. I left my QROPS untouched in Australia, partly for the QROPS five year rule and partly because I believed I could just leave it there under normal Australian pension fund rules.

Now I've had a letter informing me that my pension fund is being closed because my visa has expired, and all money is to be transferred to the ATO. There's mention of a requirement to cash the fund in and pay penalty tax of 35%.

I can't believe that I should have to pay penalty taxes on my money transferred from UK. I appreciate that any tax benefit received on contributions made in Australia and any tax advantaged growth could and probably should be taxed when a fund holder leaves Australia. But my UK money is another matter. The fund value is circa $400,000 and the penalty tax would be a life changing event.

Nobody at my pension company knows the answer and I can't get any response (yet) from the ATO. Is there any expert here who can clarify and hopefully reassure me that my QROPS transfer will be excluded from this nightmare?

renth

Oooh, unlucky. Sorry can't help but I'd be mightily pissed off having my money stolen like that.

lesleys

I don't know the answer, but here are a few links which might help you

http://www.britishpensions.org.au/information.htm

and http://www.globalqrops.com/global-qr...ralia-325.html

hatman12

I'm waiting for a reply from the ATO, and I sincerely hope that what I've been told is wrong. I understand completely if the ATO want to charge some form of tax on any pension contributions made in Australia from employment etc. But to try to claim 35% penalty tax on a qualifying transfer from England is just daylight robbery. It basically means that anyone who goes to Australia and in good faith transfers their fund, then at a later time decides to return to England, will suffer a whopping 35% tax charge on everything, including all their years of saving previously in England. If so, this is nothing short of theft.

I've got my fingers crossed and hope that sense will prevail.

Tramps_mate

Im pretty sure pension withdrawal is around those figures..

hatman12

Well I still haven't received any further information from my pension company or the ATO. But this afternoon I've spent time reading almost the entire 2008 Act and hope I've discovered some answers. I've also discovered some additional shocking points that all immigrants should be aware of.

First, for UK immigrants transferring their pension fund, apparently a transfer to Australia should be treated as a non-concessional contribution. This means that the money hasn't been granted any special tax reliefs (concessions) in Australia.

When that immigrant leaves Australia, any non-concessional contributions in their fund are treated as tax-free for the purposes of the DASP system (Departing Australia Superannuation Payment). Any interest or growth or other contributions made in Australia will be taxed.

What this means is that so long as the pension company in Australia processed the transfer as a non-concessional contribution, it should escape withholding tax when they leave. The key point is how the pension company processed the transfer.

I've now asked my pension company to confirm that they processed my transfer as non-concessional. So long as they did, I should be okay and my QROPS transfer from England should be exempt from the nightmare withholding taxes.

What this doesn't do is reduce the impact of the money-grabbing withholding taxes on any growth or interest. In Australia the pension generally pays tax internally at 15%, then the DASP tax when leaving Australia is another 35%, so that makes a whopping 50% total tax paid on the pension fund money when a resident decides to leave Australia.

Andrew Williams

Hi Hatman

You have researched this correctly in terms of the different taxable components in relation to the ATO and are right that foreign super transfers (inc UK Pensions) generally are transferred in as non-concessional contributions and therefore should be processed into the tax free element of the super tax components.

If you paid tax on any growth of the transferred Pension (ie since you moved to Australia and when the monies were transferred in) then that growth component would form part of the taxable components.

Therefore the (DASP) departing Australia super payment components are taxed as below:

0% for the tax-free component
35% for a taxed element of a taxable component
45% for an untaxed element of a taxable component


However there are potentially bigger issues for you from a HMRC point of view.

How long has it been since you were a non-UK tax resident?

There are rules surrounding what can be done with transferred UK Pensions within a certain time period.

Regards

Andy

hatman12

Hi Andy

Thanks for your note. I had hoped to hear from a industry professional, and I'm relieved to hear your confirmation of my interpretation of the non-concessional contributions. I haven't yet heard from my pension company that they treated my transfer that way, but it seems that would have been standard industry procedure at the time.

Yes, the UK Inland Revenue situation also occurred to me (as was yet another worry). I was aware of the five year rule when I emigrated to Australia, but was happy to believe I could leave my pension fund in Australia for at least the five year period. The new DASP laws change that of course. I also discovered yesterday that the five year clause says 'five complete UK tax years' not just five years. Luckily I left the UK in September 2006 and my pension transfer was completed in March 2007 (my fund statement confirms this). So my five year UK qualifying period commenced on April 6th 2007 and ended on April 5th 2012. My DASP hasn't been processed yet so my Australian pension was left untouched for the entire five tax years.

I read over the weekend that the UK rules have been changed to ten years(!) and nearly had a heart attack. However I understand that it's only the reporting requirement that's changed (in order for the UK to monitor what happens to overseas QROPS) and the tax penalty period remained at five years. I sincerely hope I'm right about this or I'm going to have potentially a double disaster.

Thanks for helping with your professional observations. Really appreciated.

Andrew Williams

No problem.

Yes five complete tax years of non-tax residency was the requirement so you have cleared that!!

You are also right in that the reporting period has changed to 10 years as of 6 April 2012 at first it seemed a bit unclear of the consequences of this but like you I now believe that it is just the reporting period that has changed.

Thus it seems HMRC willl only apply an unauthorised payment charge within the five tax year period.

We have a client in a similar boat in that she is looking to withdraw a lump sum of more than 25% from her transferred UK Pension.

She also cleared the five full years on 5 April 2012 however for extra clarity we have written directly to HMRC before she goes ahead with the withdrawal.

It seems that you have timed things quite well though!

Regards

Andy

hatman12

Andy, I really appreciate your comments. Yes, my timing appears to have been fortunate, but it was not my decision! This is something forced on me by the Australian Government. Frankly with the solidity of the Australian Dollar and the healthy fiscal position of the Australian Government, I would have been perfectly happy to leave my pension in Australia.

BTW I am now age 56.

I found this HMRC page which includes a FAQs document. In that document HMRC make many comments about the new ten year reporting requirement, but also confirm that the tax penalty situation for non-UK residents has not changed. This confirms the belief that HMRC wants a ten year reporting period so that they can monitor payments from QROPS (for future research purposes) but that the tax penalty period remains at five years: http://www.hmrc.gov.uk/pensionscheme...fers-qrops.htm

Andrew Williams

Yep, I've read through the document numerous times and feel quite sure that it is just the reporting period that has been extended but just to air on the side of caution we would like it in writing from HMRC at least for the first few cases.

Good luck.

Andy

hatman12

To my huge relief I've just received a statement from my pension company that itemises the tax-free and taxable components. My transfer from England is included in the tax-free component. In fact the tax-free component is slightly higher than I expected, so presumably some other part of a fund is considered also to be tax-free.

Broadly speaking the taxable component is bank interest accumulated while my fund was in Australia. Luckily I've had my fund invested entirely in cash for the past five years so it has enjoyed reasonable growth and escaped the volatility of financial markets. Of course it's reasonable that Australia might expect to claw back some or all of any favourable tax benefit that I was given on that bank interest while a temporary resident.

I hope this news gives some reassurance to any other British expats in a similar position.

hatman12

Here's an update to this thread:

My pension company agreed to process the DASP themselves rather than transfer the funds to the ATO (this was at my request). I sent them the required forms, including the Certificate of Visa Status obtained from the Immigration Office in Tasmania.

However today I received a letter from the ATO granting me an extension of six months to allow me to consider my position. When I was first told I'd have to cash in my pension fund and pay tax (and possibly tax to HMRC) I wrote to the ATO expressing shock. They have now responded by extending the deadline from June 30th to December 30th. That gives me a further six months to reconsider my situation. Clearly the ATO have realised that the Law changes will possibly have a significant impact and they are trying to be helpful. In granting the extension they have reiterated the Law and also explained that they are not a QROPS and because of that they have also outlined the risk of a possible tax claim by HMRC.

Because I've already passed the five years (complete tax years) of being non resident in the UK it seems that any claim made by the HMRC will not be appropriate, but tax laws are renowned for their small print.