On 1 April the previous complex tax laws on foreign pensions were replaced by new more streamlined NZ foreign super tax rules.
Leading up to 1 April the IRD had also offered a tax amnesty for anyone that had initiated the process of transferring their pensions, many people have blindly signed up to transfer without understanding the tax impact of a transfer and they would actually have been better off to transfer under the new rules than the tax amnesty – if you have not received tax advice and are in the middle of transferring contact us immediately.
If you missed the tax amnesty don’t worry
As your tax bill might not be as large as you think. Here we explore the new rules and their applicability to transfers of overseas pensions to New Zealand.
The new IRD rules levy tax when a payment or transfer is made from an overseas pension. They do this by treating a payment or transfer as income which will need to be reported in your income tax return. For the first four years that you are in New Zealand the portion treated as income will be 0%. After the first four years you can choose one of two methods to report the income for a transfer:
- The schedule method which is uses the principle the longer you have been in NZ the more you will need to declare as income,
- The formula method which is a lot more complex but basically seeks to measure the gain in value of your pension and tax that gain
The selection of the correct method is absolutely vital as we have seen many instances where people living in New Zealand for 10 or 11 years would be better off to choose the formula method on transfer – as they would have NO TAX to pay when they applied the formula method (click here for more).
The new tax rules were a significant departure from the previous tax rules and some of the most important points with the new rules are:
- You no longer have a tax liability each year if you leave your UK pension in the UK
- Returning Kiwi’s get the four year exemption, whereas previously they did not unless they had been outside of NZ for 10 years
The selection of the right method for you is not cut and dry (some UK pensions are not allowed to receive relief under the formula method) and getting the right answer could save you a significant amount of tax we therefore recommend that you speak to our experts on what will be best course of action for you – so enter your details for more information.