Given how the UK Pound has moved versus the Australian Dollar in recent times, we have seen a significant level of enquiry from UK expats about moving monies back to Australia.
The UK government seem particularly disinterested in seeing the capital of their citizens leaving their country. As such, the tax implications and complexities around UK transfers are both tough to deal with and can have serious financial consequences if the system is not negotiated correctly.
UK Pensions
Firstly, its important to establish a view as to whether its worth transferring money back to an Australian Fund. In our view, from a simplicity perspective as clients age, it is easier for them to manage their assets in the country that they live. However, bringing back UK Pensions can involve significant levels of complexity, tax implications and headaches for those wanting to do it whilst many UK Schemes are not quick to act on an instruction to transfer with the process sometimes taking up to 12 months.
There are certain criteria that must be met to be able to transfer your UK Pension back to Australia, for example
The fund cannot be a public sector fund, unless it has a UK HMRC ROP status.
The fund cannot be paying you an annual pension already
You have to be over the age of 55
You cant move your UK State Pension
The fund you transfer to has to be a Qualified Registered Overseas Pension scheme (QROPS) – see here for the list
You will note that although the list is extensive, they are essentially all SMSFs with only one retail super fund on the list.
If you are transferring more than 30,000 pounds out of a UK Defined Benefit Scheme, it is a regulatory requirement that the member obtains advice from a UK Financial Conduct Authority Accredited Adviser before the trustee of the fund will allow it to proceed.
Implications of making the transfer back to Australia
Similarly, there are implications of making the transfer under the Australian Tax and
Super System outlined below.
To receive the contribution in Australia you must
Be under the age of 75
Have less than 1.9 Million in Super and comply with the annual non-
concessional contribution limits of $110,000 AUD in any one year, or alternatively $330,000 over a 3 year period utilising the bring-forward provisions for non-concessional contributions.
Therefore, this usually requires a staggering of payments. This can prove
problematic as the ATO requires the member to close the scheme from
where the funds have come from, so you need to arrange an alternative
UK scheme to hold the balance. You must also bring 100% of the taxable
growth enjoyed since being an Australian tax resident in your first
transfer.
The tax implications in Australia are as follows:
If you make the transfer back to Australia and you aren’t an Australian tax
resident then you will be charged 25% as an overseas transfer Charge.
If the UK Pension is brought back to Australia within 6 months of either the
client having their foreign employment terminated or becoming an
Australian resident for tax purposes then the Applicable Fund Earnings (AFE)
are not subject to Australian Tax.
If outside of this 6 month window, then the tax payable will be 15% of the
investment growth achieved calculated from the date you became an
Australian Tax resident to the date you transferred your UK Pension to
Australia. Importantly the growth is not counted under the non-concessional
contribution limit highlighted above.
If you don’t want to bring the UK Pension back to Australia, or alternatively you are under the age of 55 you can use a UK SIPP (Self Invested Personal Pension) instead.
A SIPP can be likened to a hybrid of an Australian Retail Super Fund and a SMSF, however, it remains subject to all the UK rules and the UK SIPP permitted investments. They offer clients the opportunity to take control of their UK Pension investment allocation and subsequently can be managed by their Australian financial adviser which offers more flexibility compared to the limited options their existing UK Pensions provide.
Some of the SIPP solutions then provide an easy transfer process into your own SMSF once you reach the ripe old age of 55 and want to roll the money to the Australian Super System and start to navigate the complexities highlighted above.
So to sum up, this is a complex system and individual advice is required for each and every client to determine if it is in their best interests and works for them.
(Independent Wealth Partners Pty Ltd (ASIC # 1286417 ABN 66 647 667 249) is an independent professional financial advice practice which operates under the Australian Financial Services Licence (Independent Wealth Services AFSL # 512433).
This document is general advice only and it does not take into account any person’s individual objectives, financial situation or needs.
IMPORTANT: The projections or other information generated regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results.
