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Taxation Case Study

The Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014

Pension funds in the UK are not taxed by the UK Government and Brits can save up to £40,000 p.a.for their retirement from non-taxable income.  

If you are a British ex-pat, or a returning Kiwi, now that you are living in NZ your UK pension funds are called foreign investments and  are taxable after a four year transitional tax period.  You must pay tax in NZ on your world wide income (including your UK pensions). 

The Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 was introduced to make the tax rules regarding UK pensions much simpler.   


Your options:

  1. Do nothing and take a pension at retirement.  Your pension funds will be fully taxable – 100%
  2. Transfer your pension and pay the required tax based on the IRD table below

Note:  It is important to talk with a pension transfer specialist (a Lyfords adviser) to understand your options.  The pros and cons of transferring are not just about the tax issues.

How much tax are you likely to have to pay on your transferred pension funds?  Here's an example:

Fred's pension

Fred has been living in NZ for 8 years and wants to transfer his pension.  It has a value of $150,000
During the first four years he was a a transitional tax resident and did not need to pay tax on his pension funds in the UK. He has a four year tax liability. The table below shows that the tax obligation for four years is based on 18.6% of the total amount of the transferred pension. $27,900 of his pension will be taxable at his marginal tax rate.

NOTE: If Fred waited until he retired and chose to receive a pension payable from the UK he would have to pay tax on 100% of his pension funds. 

Do you need a specialist tax adviser?  Ask Lyfords - we can refer you to one

Taxation Increments Table

 
Schedule Year
Schedule Year Fraction
Schedule Year
Schedule Year Fraction
1
4.76%
14
60.27%
2
9.45%
15
64.08%
3
14.06%
16
67.84%
4
18.60%
17
71.53%
5
23.07%
18
75.17%
6
27.47%
19
78.75%
7
31.80%
20
82.28%
8
36.06%
21
85.74%
9
40.26%
22
89.16%
10
44.39%
23
92.58%
11
48.45%
24
95.58%
12
52.45%
25
99.08%
13
56.39%
26+
100%


 Author:
 Alison Renfrew, CLU, CFP
Authorised Financial Adviser, FSP35961
UK Pension Transfer Specialist
 
 
Disclaimer:

We are not tax specialists, Alison Renfrew, AFA, CFP, CLU recommends you seek advice from a specialist tax adviser.  Please request a referral to one if required. 
While every endeavour has been made to supply accurate, up-to-date information, errors and omissions may occur.  Accordingly Lyford Investment Management Limited, the directors, shareholders, advisers and employees accept no responsibility for any loss to any person (in any form whatsoever) that arises from the use of, or reliance on, the information.

 
Copyright © 2018 Lyford Investment Management Limited

ABOUT US

Lyford Investment Management Limited and Lyford Financial Services Limited are operated by Alison & Richard Renfrew. The companies provide advice based on decades of experience.  Both Alison and Richard have earned their Diplomas in Financial Planning, are Certified Financial Planners (CFP is an internationally recognised designation) and Authorised Financial Advisers.  

Lyfords provides full financial planning services including retirement planning & pension transfers.

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CONTACT US

0800 4 LYFORDS
0800 459 367
Lyfords UK Pension Transfer
174 Hutt Road, Petone
Lower Hutt 5012