Take care when transferring funds from a UK pension plan 

By Andrea Scatchard

Have you lived and worked in the UK?  If so then you probably have funds sitting in a UK pension plan.

Historically foreign pension plans caused numerous, often very costly, headaches for individuals in New Zealand as the tax rules often taxed unrealised increases in the plan’s value even if the funds were locked in and unable to be accessed to pay the New Zealand tax. The rules were changed from 1 April 2014 to simplify the New Zealand tax treatment and encourage a higher level of compliance.  From that date, individuals are taxed only at the point that they withdraw from their foreign pension plan, including transferring the interest to a New Zealand or Australian scheme.

The amount that is taxable in New Zealand depends on how long the individual has been present in New Zealand at the time of withdrawal or transfer, with the added bonus that new migrants (or returning residents who accrued their rights in the foreign scheme whilst a non-resident) are generally able to utilise a four year window and move their pension plans into New Zealand tax free within that initial period. This tax free New Zealand treatment can be very attractive, but there is a catch, and it’s a big one.  Individuals must be very careful where they transfer their funds to in New Zealand otherwise they could face a UK tax liability of up to 55% of the value transferred.  UK pension plans can only be transferred to QROPS (qualifying recognised overseas pension schemes) and these must be approved by Her Majesty’s Revenue and Customs (HMRC).

From April 2015 the list of New Zealand QROPS has been significantly reduced.  Kiwisaver schemes no longer qualify as QROPS because they allow withdrawals before the age of 55 for first home purchasers and in certain financial hardship situations, which are not allowed by HMRC.  The relevant  list of New Zealand approved QROPS is generally available on the UK HM Revenue & Customs Website, however, the list of available QROPS schemes is currently undergoing further review by the UK HM Revenue & Customs and is due to be re-published shortly. It is therefore important that you check carefully with any NZ QROPS provider to ensure that they are still able to facilitate a pension transfer; otherwise you face the risk of your funds being returned to your UK scheme. This is particularly relevant if you currently have a transfer underway.

If you have a UK pension plan and are looking to transfer it to New Zealand, make sure you do your homework and seek professional tax and financial advice before proceeding.  Also be aware that the transfer process can take some months to implement so if you qualify for the transitional resident four year exemption and are considering transferring your pension plan within the four year period you should start talking to your advisers at least six months before your exemption period expires.

For more information please contact your usual Deloitte adviser.

July 2015 Tax Alert contents

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Take care when transferring funds from a UK pension plan

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Increase in pooling value threshold for depreciation purposes