UK PENSION TRANSFER TAX

May 9, 2022
UK PENSION TRANSFER TAX. WE'LL BE YOUR LIGHTHOUSE

So, you are looking at the question of your UK Pension transfer tax, and wondering how much it is? How much tax will you pay in NZ when you transfer your pension over from the UK or other countries?

SUPERANNUATION TRANSFER TAX

Have you transferred or are you thinking about transferring your foreign superannuation to New Zealand? When you do it can make a huge difference in terms of tax.

If you are moving to New Zealand, or are returning home to Aotearoa from overseas, then you may quality for what is known as a “transitional tax resident exemption.” What is this? How does it impact on your tax obligations? Before we get to that, we need to warn you:

BEWARE OF EXHORBITANT ACCOUNTING FEES

Unfortunately, some firms are charging ridiculous fees, and using fear to justify it. For example, one quote from a well-known accounting firm was nearly $1,500 to calculate their pension transfer tax and file the tax return. EpsomTax.com is a premium boutique firm, but the above-mentioned firm’s fees are a staggering 80% more for what is, in reality, some fairly simple math. So, firstly, watch out for unscrupulous operators.

Now, on to some nitty-gritty:

TRANSITIONAL TAX RESIDENT EXEMPTION

A transitional tax resident is a migrant or returning New Zealander who is in the process of becoming a New Zealand tax resident.

Is this the same as citizenship or residency for migration purposes? No. It’s to do with tax residency. Tax residency is different to the concept of citizenship or your country of permanent residency.

When you arrive here, you may qualify for a temporary tax exemption on most foreign-sourced income for a period of up to four years (48 months). If you become a New Zealand tax resident without using the transitional tax residency exemption, you would be taxed in New Zealand on all of your worldwide income. Ouch.

To be eligible for this exemption you must:

1. meet the requirements to become a New Zealand tax resident;

2. not have been a New Zealand tax resident for the last 10 years;

3. not previously used the transitional tax residency exemption; and,

4. not be receiving any Working for Families Tax Credits*.

To help determine your eligibility and plan your tax obligations, we can check your tax residency status. Some of the factors taken into consideration include whether you:

  • have any overseas bank accounts, digital wallets, bonds or credit;
  • have a foreign portfolio with a portfolio manager, bank, bare trustee or nominee;
  • own property situated outside New Zealand;
  • receive income from an overseas business, pension, salary, trust or rental; and,
  • receive income from overseas interest, dividends or royalties.

This will help you obtain a full picture of your overseas income; we can then advise you the correct tax treatments for your transitional residency and also help you prepare to be NZ tax resident. This will give you some certainty of your tax obligations and your tax position.

Please note: transitional tax residency will be automatically granted to you if you meet the criteria; if you do not wish to be a transitional tax resident, you need to notify the Inland Revenue Department (IRD).

WHAT IF I’M NOT A TRANSITIONAL RESIDENT?

In that case, there are IRD rules to calculate the amount of tax due. Essentially, once your 4 years is up, a percentage of the amount you bring into NZ is taxed.

BEWARE OF TAX OVER $60,000

The “safe harbour” provision is the threshold at which IRD use of money interest (UOMI) applies if income tax for the year is underpaid. The threshold is residual income tax  (RIT) of less than $60,000. Residual income tax is how much you have left to pay at year end.

What’s the relevance? If you are transferring a pension from overseas, and RIT is more than $60,000, then you will need to use tax pooling to deal with this and not be hit with IRD penalties and interest. Careful planning is required

WHAT WE DO

Our fees for pension transfer tax assessments include: 

  • Calculations to determine any applicable exemption periods that may apply
  • Tax advice outlining the tax rules in relation to the transfer
  • An explanation and calculation of the amount of tax payable as a result of transferring your pension to New Zealand so that it can be included in your tax return,
  • Calculating the best way to minimise tax, including use of tax pooling if advantageous
  • Preparation and filing of your personal tax return to account for your pension transfers and all other income and tax credits

Contact us now to organise your assessment and get a quote or call 0800 890 132 line 2

FAQs

Can I lose my transitional tax resident exemption status?

Yes. Unfortunately many transitional tax residents lose their exemption because they try to claim deductions on overseas losses, typically relating to overseas rental properties.

What many of them do not realise is that by initiating such a claim terminates their transitional resident exemption status. The same applies if a transitional tax resident claims Working for Family credits. This is why specialist tax advice is so important.

Which tax exemption/s will I qualify for?

If approved as a transitional tax resident, you will qualify for tax exemption on certain foreign income, such as foreign interest and foreign dividends, for four years. Please see the IRD website for a complete list of exempt foreign income.

What do I need to do throughout transitional tax residency?

During the four-year exemption, it’s a good idea to make preparations for when you become a permanent New Zealand tax resident.

For example, you might want to forward plan moving your overseas pension to New Zealand and budget for it becoming a taxable target once your transitional period finishes.


*Working for Families Tax Credits are tax credits available to assist New Zealand citizens who care for dependent children.

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