tax on a transfer
UK tax on transfers to a NZ QROPS
On 9 March 2017 the UK government introduced an overseas transfer charge (“OTC”), the charge only applies if you transfer your pension to a country that you do not live in. So if you live in New Zealand you can transfer your UK pension to any New Zealand QROPS and there will not be an OTC of 25% on the pension transfers. If you do not live in New Zealand but have transferred your UK pension to another QROPS prior to 9 March 2017 you can still transfer to a NZ QROPS without any OTC.
New Zealand tax on transfers into NZ QROPS
- If you are not resident of NZ or been in NZ less than 4 years after acquiring the pension then you transfer is tax free
- If not you can use either the schedule method or formula method to calculate your tax – the results of both can differ wildly
- You can use the lowest method for determining your tax
If you are not a resident of New Zealand or have been in New Zealand less than four year since you acquired your UK pension fund then there is no tax on pension transfers you make. This no tax on pension transfers extends to returning New Zealanders who have acquired pensions while in the UK – you are no longer required to be outside of New Zealand for 10 years to receive this exemption. This was a very positive move by the IRD in New Zealand.
Lifting the hood a little more on the tax legislation on UK pension transfers to New Zealand there are two methods that you can use to calculate your tax on pension transfers. First, is called the “schedule method” (which is where the longer you have lived here the higher the tax on transfer) and second the “formula method”.
The “formula method” involves a more complicated set of equations, a whole lot more background information and a two page worked example by the IRD to explain it.
Boiling it down into it’s simplest terms, if the value of your foreign pension, in New Zealand dollar terms, was worth more four years after you arrived in New Zealand than when you transferred it to New Zealand you will have NO tax on pension transfers to New Zealand.
The fact that you have nothing to pay is obviously going to be better than declaring 15% of your transfer value as income.
The strong New Zealand dollar rides to the rescue
Because everything needs to be reported in New Zealand dollars under the “formula method” the strengthening of the New Zealand dollar in recent years means that peoples overseas fund values may have stayed static or decreased in New Zealand dollar terms.
The easiest way to demonstrate the exchange rate effect is looking at the exchange rate adjusted performance of the FTSE100. This shows that compared to the current value in most years the value was either higher or close to the current value as shown in this chart.
This could be great news for many people that have returned from the UK or immigrated to New Zealand who have been worrying about their tax bills after 1 April 2014.
If you don’t know past fund values you can’t use the “formula method” – and final salary schemes which make up 80% of all UK schemes by value cannot use the “formula method” for calculating tax liability.
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Until now I'd imagined my UK pension funds being locked away behind all manner of firewalls and bureaucratic hurdles to access on retirement. Before committing the one surviving official document of my English OE to the bin - a single page detailing my private pension details - I contacted you out of curiosity. The result feels a little like winning lotto.
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.
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!
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.
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.
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.
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.