British Expats in OZ to Face High Pension Tax

British citizens moving to Australia or New Zealand and planning to transfer their pensions there, may be in for a nasty surprise; a tax charge of a whopping 55% due to new rules that came in in April. Under these new rules, savers are enabled to take their entire pensions with them to another country as one pot of cash, but are also not allowed to access these savings before they turn 55, apart from in the case of early retirement for health reasons.

However, many Brit retirees each year decide to emigrate to Australia or New Zealand, and similar schemes in these countries do not have the same restrictions that prevent people from accessing these savings before the age of 55. Instead, these schemes allow savers to access a portion of their funds in certain special circumstances, such as financial hardship.

New Requirements

HM Revenue and Customs has now written to all of these schemes down under, which are known as QROPS, or Qualifying Recognised Overseas Pensions Schemes, and in these letters have warned them that they must meet the new requirements, otherwise savers will no longer be able to transfer their pensions abroad as one pot of cash without invoking tax penalties for doing so.

The schemes have been given until June 17th to inform HMRC of whether or not they will meet the new requirements. However, it is forecasted that many foreign schemes are unlikely to go ahead and change all of their rules merely to fit in with the UK’s requirements, as the new rules would affect members of the schemes who are native Australians or New Zealanders – therefore, they would be penalising the massive majority of their scheme members to accommodate the minority.

It looks like the Aussie and NZ schemes will instead look for an exemption, but this may be a long winded process. So, for the time being, if pensions are transferred as a pot to a scheme abroad that has not qualified under the new rules, a UK imposed tax of 55% could be applied to the money in a pension being transferred abroad. UK expats planning on moving themselves and their pensions abroad are being advised to make sure that if they are putting their pensions into an Australian or New Zealand-based scheme, they should carefully check first that the scheme complies with the new rules, to avoid heavy taxation.

Who’s Affected?

The new rules came into effect on April 6th, and there is good news for some; those who moved their money before then will most likely be unaffected. Those who transferred after April 6th are advised to contact their scheme trustees or the provider of their pension to check the scheme is compliant, and if not, to ask for the transfer process to be halted for the time being, as it can take 3 to 4 months for the transfer process of a QROPS to be completed.