When migrating to New Zealand one of the most important financial considerations is whether to transfer UK pensions to New Zealand or retain them in the UK throughout retirement.
Transferring UK pensions to New Zealand
One of the main advantages of New Zealand pensions (known as superannuation schemes) is that pension benefits, paid from New Zealand Schemes, are paid tax free to a New Zealand resident.
Unlike UK pension schemes where a pension member is limited to 25% of the funds value as a lump sum, on retirement, New Zealand allow their residents 100% of the funds to be taken as a lump sum.
If a UK pension member transfers their UK pension funds to a New Zealand scheme, they may be able to take 100% of their accrued funds as a lump sum, tax free, upon retirement in New Zealand.
Should a UK pension member leave their pension benefits in the UK until retirement and take benefits from the UK pension whilst a New Zealand resident, the member could be assessed for tax on those benefits, by the New Zealand Inland Revenue, when the member is deemed to be in receipt of those benefits.
An important point to consider is, although New Zealand Superannuation schemes pay benefits tax free in retirement, the growth and accumulation on the funds, within the New Zealand scheme, can be subject to tax.
However, the tax treatment of pension benefits is not the only factor on deciding whether to transfer.
The fluctuations in the exchange rate would affect the potential transfer value of a UK pension, therefore a pension member should take advice on how and when to lock in on an acceptable rate, in order to obtain the highest transfer value possible in their circumstances.
Other UK tax and advice issues
Individuals often retain UK property when moving to New Zealand.
The first consideration is rental income and how this is treated for tax in both the UK and New Zealand.
There could also be a capital gains tax (CGT) issue in the UK when you come to sell your UK property (if the property is not considered as the owner’s principle private residence). New Zealand does not have CGT. However, becoming a New Zealand tax resident does not immediately mean that you are exempt from UK CGT on assets such as property or shares.
When retaining assets in the UK it is vital that an individual takes advice on the UK Inheritance Tax (IHT) implications. New Zealand does not have IHT, but by simply moving to New Zealand, this does not mean that you are no longer subject to UK IHT.
4 Year Temporary Tax Exemption
New Zealand has a temporary tax exemption for new migrants or returning New Zealanders (who have not been a tax resident for at least 10 years prior to arrival).
The exemption applies to ‘foreign source’ income such as foreign investment fund income, offshore rental and interest. It does not, however, apply to income derived from overseas employment. This exemption commences for 4 years, upon arrival in New Zealand.
Therefore, those with UK pensions or property rental income, for example, can take advantage of this exemption. It is important, however, for an individual to take advice before claiming this exemption, as you may not be entitled to certain New Zealand state benefits during the exemption period.
Article supplied by bdhSterling