Tax changes will affect past and future UK pension transfers
The Inland Revenue Department (IRD) is proposing a shake-up of the current complex tax laws on foreign pensions. The new legislation will apply retrospectively and provides limited time for those affected to carefully consider their options. Significant tax savings may be achieved by taking appropriate steps now to strategically position for the change.
Have you already transferred a UK pension?
Given the widespread non-compliance with the existing rules, the IRD are proposing an amnesty for transfers that have already been made or will occur prior to 1 April 2014. Essentially, where tax obligations have not already been met, 15% of the transfer value will need to be declared as income in either the 2013/2014 or 2014/2015 tax year.
IRD have indicated they will step up their audit activity relating to pension transfers once the amnesty period closes.
Are you contemplating transferring your UK pension?
The simplified tax regime that will apply to future pension transfers will have differing impact depending on the timeframe since migration to New Zealand. With appropriate advice it may be possible to significantly decrease the resulting tax liability. For instance, accelerating a pension transfer so that it is complete before 1 April 2014 may result in a lower tax liability under the amnesty window compared to the new rules that apply beyond that date. Individual circumstances will dictate the best approach.
The merit of transferring pensions from a UK perspective also needs to be considered. Importantly, defined benefit scheme values are presently at historic highs due to low interest rates in the United Kingdom. When interest rates rise, the transfer values of these schemes will fall. Other factors to consider include: current exchange rates; accepting or avoiding UK inheritance taxes; pension guarantees; and other benefits of individual plan entitlements.
This is a complex area. As chartered accountants and investment consultants, we are well placed to advise you on tax matters, transfer providers, and the potential destination for investment funds.