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Paying your tax liability on UK pension transfers

 
We have had an enormous number of people that have transferred their pensions to New Zealand in the past contact us recently worrying that they have a tax liability and wondering how they are going to pay it if they do have one. This has not been helped by:

  • A lack of information from the IRD on the subject
  • New Zealand schemes not correctly informing people when they might have a tax liability

 
Here we do our best to clear up the situation for people.
 
 

Common question 1: Do I have a tax liability on UK pension transfers

If you transferred your pension to New Zealand:

  • After 1 January 2000
  • Not while you were a transitional resident (within four years of arriving in New Zealand)

 
You will typically have a tax liability.
 
 

Common question 2: How much is my tax liability on UK pension transfers

Worst case scenario if you transferred between 1 January 2000 and 31 March 2014 is that you will need to declare 15% of the total transfer value as taxable income in your income tax return and pay tax on that income. This does not mean 15% tax, it means your tax rate times 15% of your transfer value (so if you are a high earner and have a 33% tax rate it is the equivalent of 33% of 15% in tax).
 
The “tax amnesty” described is penalty free if you declare in your 31 March 2015 tax return. The last day for filing such a return through a tax agent is 31 March 2016. After that date you will accrue interest and penalties on using the using method and these could stack up.
 
If you transferred after 31 March 2014 then the tax rules are slightly more complex but there are two potential tax methods that you can use, either the schedule method or the formula method. You can use whichever method gives you the best tax outcome. Unfortunately we have seen too many examples of people being told that their tax liability will be the amount under the schedule method and no one has ever even checked their liability under the formula method.
 
 

Common question 3: Who owes the tax if I have a tax liability on UK pension transfers

The way that the legislation is structured is that you need to declare the transfer (and any amnesty declaration) in your personal tax return (an IR3) in New Zealand. This means that the tax liability is yours. For clarification it is not the New Zealand scheme that you transferred your UK pension into tax liability.
 
You owe the tax, just in the same way as you owe the bank for any mortgage that you take out.
 
Because you owe the tax you cannot have your New Zealand pension scheme that you transferred your UK pension into pay it for you to the IRD on your behalf out of your transferred funds. The only time that this could happen would be if you were entitled to a payment out of the NZ scheme and that will be dependent on a number of variables.
 
 

Common question 4: How do I pay my tax liability

How do I pay my tax liability is the biggest question that we have received from most people. Here is a breakdown of some common situations (where the first port of call is understanding whether the transferred funds can be used to pay the tax liability):

  • If you transferred after 6 April 2012 and are under 55 you cannot use your UK pension transferred to New Zealand to pay any of the tax liability
  • If you are in the above situation and close to 55 years old, you may be able to negotiate an extension with the Inland Revenue on when you actually need to pay the tax
  • If you transferred after 6 April 2012 and are over 55 you might be able to access some of the transferred funds to pay your tax bill
  • If you transferred to New Zealand pre 6 April 2012 and have been outside of the UK for more than 5 complete and consecutive UK tax years you may be able to use your transferred funds to pay your tax bill regardless of age

 
So the answer is really dependent on when you transferred your UK pension to New Zealand, which scheme you transferred into (meaning the trust deed rules) and how old you are now. We can help assess your situation and go through your options with you. In most instances we can help and are happy to provide advice where it is needed.
 
For the purposes of clarity, if you transferred your pension after 6 April 2012 and you are under 55 years old your New Zealand scheme cannot pay your tax liability on your behalf out of your transferred UK pension funds under any circumstances (just in the same way that they are not allowed to pay your mortgage off on your behalf out of your UK transferred pension funds).

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NZ free phone:0800 102 599 / OZ Free Phone:1800 857 410 / Email:info@qropsnz.com

very stress free

Thank you Cambel for your help and guidance throughout this process in getting my pension transferred (very stress free for me). It is greatly appreciated and I would certainly recommend you and Charter Square to others who are interested in transferring their pension.

David R, New Zealand

You guys rock!

I just wanted to say a great big thank you to you and your team. You are all totally awesome. I received a cheque yesterday from the Prudential to apologise for the ‘recent inconvenience’ that I had experienced. Thank you for doing this for me. You guys rock!

Noelle B, New Zealand

professional, insightful

Charter Square were professional, insightful and a pleasure to work with. They rose to the challenge of consolidating my overseas pensions and bringing them home with minimum fuss for me and maximum effort on their part.

Jens H, New Zealand

thorough, professional and prompt

Very thorough, professional and prompt service from the team at Charter Square. Thanks for making the bewildering world of pension transfers super simple.

Jules T, New Zealand

Best party to deal with

Thank you kindly for keeping in touch with me. For now, I will not be moving my pension. I will however be keeping your details and referring back to you when I wish to pursue. You by far are the best party to deal with, no nonsense, professional and in my opinion genuine. I do sincerely thank you for your advice to date.

GE, New Zealand

Freedom

Securing the freedom to use savings that are actually ours to work with has been stressful in the extreme. While I never planned on giving up there were many times when the current (UK) holder made the whole process seem well beyond my determination and ability. It’s easy to look at the 36 month history of this claim with the benefit of hindsight, but the conclusion is that employing Charter Square in the first instance would have been wise had I been able to anticipate the red-tape that appears to have been deliberately created to stall access.

CP, Auckland
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