chc4me

As previously indicated on this forum, the New Zealand Govt are proposing to 'simplify' the rules for UK Pensions. This will impact all ex-UK residents and returning Kiwis who either hold a UK Pension fund or have transferred their Pension Fund to NZ.

There is a window of opportunity to transfer your pension without paying any tax and then take your benefits without any further tax.

There is also a limited offer to pay a onetime low tax for those that haven't met the rules in the past (even though those rules were complicated and confusing).

Here's a link to the release.

Happy to answer all questions free of charge. (I don't make the rules, I just find better answers!)

BEVS

Thanks for letting us know . Can you give it to me in simple terms please? I already have head boil from MrBEVS plumbing upskilling courses.

Is it a retrospective tax?

chc4me

It has a retrospective element to it. The view of the IRD is that rules to pay tax on international investments, including investments in UK Pension savings, have been in place for a number of years, however not many people have paid tax correctly. Therefore this change will rectify the problems of the past and make the rules simple going forward.

I'll finish reading the 80 odd pages released by the IRD and come back with some simple explanations in terms of how and who is affected.

chc4me

The tax bill is aimed at clearing up a complicated area of tax that has been misunderstood and/or misinterpreted. This thread is for migrants and returning Kiwis that hold private pensions in the UK, or those that have transferred their private pensions to NZ. It is not about State Pensions.

First, it is important to understand the current tax arrangements in both countries so that we can compare the two.

Tax in the UK is not paid during the savings period, however at retirement tax is paid on the income received (commonly called an Annuity). This gives a tax advantage during the savings period but means paying tax in retirement.

NZ is the opposite. Tax is paid during the savings period, but not withdrawals from retirement savings. This provides an advantage in retirement and a potential advantage to migrants looking to retire in NZ.


OK, on to the Tax Bill and those that will be affected. There are three main groups as below.


1) New Migrants
Most new migrants have a four year tax exemption (named Transitional Resident) on overseas income which includes private UK Pensions. This category have an advantage. If a new migrant transfers their pension to NZ within the four year exemption, then no tax is payable on the transfer.

This gives a 4 year window to make the transfer without paying any tax. However once the funds are invested in a NZ scheme (QROPS), the scheme will pay tax on the investment returns. When it comes time to retire and make withdrawals, no further tax will be deducted from the payment. A huge financial advantage if close to or over age 55.

2) Been in NZ for more than 4 years, not transferred pension savings.
Liable to past taxes, but with options. This group can elect to transfer their pension to NZ and pay tax on only 15% of the amount transferred OR leave it in the UK and pay tax on ALL future withdrawals. Yes that means paying tax on the lump sum commonly withdrawn at retirement.

Depending on how close to retirement you might be, paying tax now might be better than paying tax on all withdrawals in the future. This group has a number of options to consider before making a decision.

3) Living in NZ and transferred pensions after the 4 year exemption.
This group are liable to past taxes. However the NZ IRD recognise that the rules have been complicated and therefore are offering an option to pay tax on 15% of the amount transferred. This group is the most affected by the tax bill.

Note: Tax is payable at your marginal rate. Therefore if you are at the top rate of 33%, it would be Pension value X 15% = Amount x 33% = tax to pay. As a general rule of thumb, it's 5% of the pension value. (Keeping it simple for Sparkie cause I know his eyes glazed over after the heading !!!).

Questions?

MrsFychan

husband 37yrs, private pension been in NZ since sept 2011. whats his best options seeing as we don't know if we would retire here?

burbschook

Thank you for bringing the update.
Could you clarify the term new migrant please?
Does it mean anyone who migrated to NZ from 2000 until now and transferred their private pension within the four year exemption period of their migration?
We migrated in May 2007 & transferred our pensions in Dec. 2008.

Clappy

Thanks for the update.

chc4me

For the first 4 years he qualifies as a transitional resident and therefore he has until Sept 2015 to decide. A number of factors should be taken into consideration before a transfer of any pension including: Type of pension, benefits in the future, loss of pension on death, flexibility in NZ compared to the UK, and tax to name a few.
Just double check that he doesn't lose the transitional resident status. This can be easily done by receiving Working For Families tax credit. See this link for more information.

chc4me

New Migrants, as termed in point 1. of the earlier post, refers to anyone who migrates to NZ for the 1st time and qualifies as a Transitional Resident. This gives them a 4 year tax exemption on overseas income. It also includes returning kiwis who have been away for 10 years.

For your situation, as you transferred your pensions within the first 4 years, and assuming you held transitional status at that time, you are in the clear!!

chc4me

I'll be offline for the next two days but will be back after that to answer questions. Thanks.

wendy_woo

Brilliant guidance, thank you so much for your efforts! Glad to see we should be ok, finally sold our house so hoping to be in amongst the June intake - yiippee!!

planty

Hi CHC4me and thank you for letting us know.

I have a small pension left in the UK, probably worth nothing now since the financial crisis. OH has a teachers pension, again not sure to the exact value.

We've been here over 6 years now, we've got close to 20 years until retirement.

When you say approximately '5% tax of the pension value', is that only for a transfer if done in the immidiate future? Or if transferred at at any time later?

Only reason I ask is because I wouldn't want to transfer now with such a shocking exchange rate. If it was 5% of pension value in 5, 10, 15 years I think I would be willing to gamble on the exchange rate or should I say Britains future improving a little.

Thank you in advance.

BEVS

That would be us then. We arrived mid 2004. Finally transferred mid 2010.

We didn't make "savings" ( gains?) over that period. In fact, the value of the funds reduced year on year. Though how we prove that now - retrospectively- , I am not at all sure.

I'm 6 yrs off NZ super. Husband is 11 yrs off.



edited here to add.....

ChC4me is a UK pension transfer specialist as you will see from his signature. He isn't allowed to advertise directly onto our open forum and he does not but as he is so very helpful to us all, I thought it worth mentioning that he is actually able to help with a transfer for real.

chc4me

This is an excellent question! It looks like you are in group 2 (refer to my earlier post) where you have been here for more than 4 years and still have your pension savings in the UK. You have two main choices:

a) Transfer you pension to NZ and pay this one time 5% tax. Then when it comes to retirement, no tax to pay.[SIZE="2"] OR
b) Pay tax when you retire instead of now.

If you elect to keep your pension in the UK, then ALL payments from your pension fund to you will be taxed in full. For example, if you retire and your pension allows a 25% withdrawal of say $30,000 plus an income for life of $10,000 per year. You will pay tax on the $30k plus tax each year on the $20k. The top tax rate is 33% which means $9,900 tax on the lump sum plus $3,300 each year you receive the income payment.

For recent cases I've assessed, the 5% low rate tends to work in your favour. This 5% is only for transfers completed by 31 March 2014. After that, the percentage is based on how many years you have been in NZ (it increases with time).

I recommend all British Expats with Pensions still in the UK to contact their provider and request a Cash Transfer Value which will show the current worth. This is FREE to do and then allows you to consider the options more closely. Planty, you may be surprised that your savings have actually bounced back somewhat. Also a number of investment options will allow you to keep money in Pounds and wait for a better exchange rate.

Please note, tax is only one consideration in any investment. There may be other reasons to either transfer it OR to leave the pension in the UK and for this reason every person should seek advice for their own circumstances. If you find this post helpful, reward me with the Karma button.

Tango1

Hi

Do you know how do I stand, I transferred my pension just over 5.5 years ago, put it into a QROPS (still in sterling) April 2012 I took a lump sum out into a non QROPS account and withdrew it in NZ dollars........that's gone and spent, the balance is still in the QROPS account, will I be liable for any tax payments.

Thanks for any advice

John