QROPS in Australia. Pension Tax Relief
Ever in search of the sun, more than 1,310,000 UK expats live in Australia including over 245,000 pensioners according to the Institute for Public Policy Research (IPPR); British expats living and retiring in Australia can now transfer their pensions out to Australia via a QROPS in Australia.
QROPS in Australia. Pension Tax Relief for UK expats
Australia is the number one destination for UK expats looking for sun, sea, sand and retirement.
Legislation changes made to Australian pension rules in 2007 must be taken into account when considering transferring pension benefits to a QROPS in Australia.
If benefits are transferred to Australia:
• There is a 6 month window after a UK expat becomes an Australian resident in order to transfer pension benefits to an Australian Qualifying Recognised Overseas Pensions Scheme (QROPS) without incurring a tax charge.
• Any transfers made after 6 months will give rise to an income tax charge (typically 15%) based on the growth of the invested funds from the date of becoming Australian resident to the date the pension is transferred. For
transfers that do take place after 6 months, it is therefore a case of the sooner the better, otherwise it may be the case that it is better off left in the UK.
• Complying with this 6 month rule in order to avoid the tax on the invested funds could be problemental for those with substantial transfer values
because there is an annual limit on contributions (including transfers-in from overseas) of A$150,000, although the A$150,000 limit can be bought forward for the next two tax years, if the individual is under age 65. This means that, for someone under age 65, a maximum of $450,000 (roughly £300,000
based on exchange rates in July 2011) could be transferred in the first 6 months, as long as no contributions are made during the first 3 tax years.
• Whilst contributions and transfers can be made until age 75, if someone is over 65, they must work a total of at least 40 hours over a period of
30 consecutive days during the tax year to qualify.
This is an important consideration for clients over 65 intending to retire in Australia as contributions and transfers-in will not be possible if the 30 day
requirement is not fulfilled.
• When benefits are subsequently drawn from an Australian scheme, then as long as they have been an Australian resident for more than 5 tax years and
are over age 60, it may be possible for the whole fund to be taken as a tax free lump sum – any UK restrictions on how the benefits can be taken will
cease to apply.
QROPS in Australia. Late Pension Transfers
But what happens if pension benefits are left in the UK after someone has emigrated there?
• Under Australian Foreign Investment Fund (FIF) rules, personal pension funds left in the UK for more than 6 months after someone has become an Australian resident becoms liable to Australian income tax on any fund growth. This will continue to apply until such time that the benefits are subsequently transferred to Australia.
• Benefits held in a UK occupational scheme, however, would only be subject to income tax in Australia on the growth of the invested funds if they are transferred to Australia after the 6 month window has closed. In this case, the tax charge would be based on the fund growth from the date of becoming an Australian resident to the date that the benefits are transferred.
• This means that if UK occupational scheme benefits are transferred to Australia within 6 months or, alternatively, are never transferred, they should
escape any liability to Australian tax on the fund growth.
• With FIF in mind though, a transfer from a UK occupational pension scheme to a UK personal pension could lead to an income tax liability in Australia on the invested funds going forward.
• When benefits are subsequently drawn from a UK pension scheme, whilst the UK has a double taxation agreement with Australia (thus ensuring
that any pension benefits paid from a UK registered pension scheme to an Australian resident will not be subject to tax in the UK) both the tax free cash and income will be subject to Australian income tax. In view of the above, the relative tax treatment of the funds and benefits could make a transfer of funds to an Australia QROPS very attractive – particularly if the
transfer is made within six months of emigrating.
We would strongly advise however that anyone who is emigrating, or who has already emigrated to Australia, should seek advice from a suitably qualified adviser who is well versed in Australian pension and taxation law before any decision regarding transferring pension funds is made.
It is important to contact a QROPS Specialist when undertaking a QROPS in Australia pension transfer.
For more informatin, please contact firstname.lastname@example.org
QROPS in Australia written by QROPS Specialists.