Linda Sanders: foreign fish hooksby Linda Sanders
You should be able to transfer your overseas pensions, but there are a few catches.
The issue comes up because the Inland Revenue Department is changing the tax rules to make them simpler and fairer. The proposals are before a select committee and are expected to be in force within a few months.
Readers who contacted the IRD after the earlier column have not been able to get much information. Tax issues are complex and front-line staff can’t easily comment on laws before they come into force.
In the meantime, pension transfer specialist Simon Swallow, of Charter Square, has answered some reader queries.
Don has been paying tax on his pension since he retired here in the early 1990s. He was confused as to whether the new rules relate to people who arrive here having paid into a UK pension fund but are yet to reach the age to receive it, or to those who now receive an “annuity” pension. He wants to know if he will be required to transfer the remaining funds.
Happily, Don doesn’t need to worry. The new rules relate to those whose pensions have come into payment and he can leave his current arrangements in place.
Brian C wants to know whether the new rules apply to those receiving a British state pension. Answer: They don’t.
Brian B pays New Zealand income tax on his monthly UK pension and doesn’t want to transfer it. He doesn’t need to do anything.
Phil says I didn’t mention a catch he’s learnt about. “I’m told the IRD will deduct any windfall from your New Zealand pension, so you end up no better off. Is this true?” Answer: This offsetting only applies to people receiving state pensions from overseas countries and not personal pensions from New Zealand.
Catherine brought her UK pension over in 2011. Her pension company has said this new rule won’t affect her as it wasn’t in place then.
Unfortunately, says Swallow, the new rules will affect her unless she has followed the existing rules to the letter. The key questions are:
• Did she transfer while still a transitional resident in New Zealand – that is, in the four years after she arrived as a foreigner? If she was a returning Kiwi, she would need to have been away for 10 years to qualify.
￼• If she transferred outside of transitional residency, was the fund worth more than $50,000? If so, she should have applied the foreign investment-fund rules, reported any gains in the value of the foreign pension to the IRD each year and paid tax. If she didn’t, she’ll need to declare 15% of the transfer value as income in either this or next year’s tax return and pay tax on that income, or retrospectively apply the foreign investment fund rules.
Even if her fund was worth less than $50,000 and she didn’t pay tax when she transferred the funds to New Zealand, she will need to declare 15% of the transfer value as income and pay tax or look into the tax position of her transfer at the time. There are no de minimis rules where funds under $50,000 are automatically exempt from tax on transfer.
These are retrospective rules designed by the IRD to capture people who have transferred and not paid tax. The IRD has said it will step up compliance after April 1, 2015, by getting lists of people who have transferred their pensions and not declared under this voluntary regime.
Finally, John asks how to find out if you have any pension entitlements in Australia. Click here as the place to start the search for your lost Aussie super.
Send questions to: email@example.com
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