One of the key advantages of Australian pensions (known as superannuation schemes) is that pension benefits are paid tax free to the member at age 60.
Australian regulations also allow a member to take full flexible benefits, including 100% as a lump sum if they wished, from their superannuation schemes at retirement. This is different from a UK scheme where a pension member is restricted to taking 25% of the funds value as a lump sum, with the balance 75% allocated to provide an income for life.
Should a UK pension member leave their pension benefits in the UK until retirement and take benefits from the UK pension whilst a permanent Australian resident, the member would be assessed for tax on those benefits when paid across from the UK.
However, the tax treatment of pension benefits in retirement is not the only factor on deciding whether to transfer.
The fluctuations in the pound versus Australian dollar exchange rate affect the potential transfer value that arrives in Australia from a UK pension. Therefore, a pension member should take advice on how to lock in on an acceptable rate.
Australia also has a tax known as Section 305 Tax. This tax applies if an individual arrives in Australia on a permanent visa and proceeds to transfer their UK pension to an Australian scheme 6 months after their arrival. The UK fund will be subject to tax on any growth that occurred between their date of arrival in Australia and when the funds arrive in an Australian scheme. This is often referred to as the ‘6 Month Rule’. Before considering transferring within the 6 month period, an individual should take advice as to whether this has a significant impact on a transfer value compared transferring at the current exchange rate.
The Australia Tax Office (ATO) also has a limit on the level of pension funds that can be transferred into their Superannuation schemes each Australian tax year (this is currently A$150,000 a year or A$450,000 can be transferred every three years). This means that a UK pension member, with a large fund, will need advice on how to stagger transfers into an Australian scheme from their UK scheme.
Other UK tax and advice issues
Many individuals retain UK property when moving to Australia. The first consideration is rental income and how this is treated for tax in both the UK and Australia. There could also be a capital gains tax (CGT) issue in Australia when you come to sell either your UK property or new Australian property, depending on which property is considered the individuals principle private residence.
When retaining assets in the UK it is vital that an individual takes advice on the UK Inheritance Tax (IHT) implications. Australia does not have IHT, but simply by moving to Australia this does not mean that you are no longer subject to UK IHT.
When leaving the UK an individual should also consider whether they are still covered by their UK Life Assurance Policy. When employees leave their UK employment, their death in service cover would lapse, as would an individual UK life policy where premiums cease.
Article supplied by Paul Davies from bhdSterling
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