QROPS transfers
All working individuals in the UK contribute via Compulsory National Insurance Contributions for a basic State Pension. This cannotbe moved. Most other retirement monies (with certain exceptions like annuities in course of payment) can be moved.
Contributions to pension schemes are subject to "Annual Allowance" rules. The minimum age for benefits is 50 (increasing to 55 on 6 April 2010). 25% of the value of the Fund can be taken as tax free cash. Benefits are tested against a "Lifetime Allowance" with excess components subject to higher tax. In 2007/8 the limit is £1.6m (with various transitional arrangements).
All transfers of UK pension monies after 5 April 2006 are subject to QROPS requirements, i.e. a Qualifying Recognised Overseas Pension Scheme. Failure to transfer UK monies to a QROPS can result in a tax charge of up to 55%. The purpose is to ensure the monies are used for "authorised purposes". QROPS funds have to provide HM Revenue and Customs with information about payments/transfers for a period until the member has not been a tax resident in the UK for the current UK tax year and the previous 5 tax years.
A SMSF can become a QROPS. We can assist a SMSF to apply for QROPS status. Please see our Support Services page for the relevant form as well as information on how we can facilitate the transfer of monies to Australia.
tax payable
The information to make decisions and to calculate the tax payable comes from a Cash Equivalent Transfer Value (CETV) form which is supplied by the UK Fund administrator. We can facilitate this process - see information in Support Services.
A transfer within 6 months of Australian tax residency does not incur any tax on the funds transferred unless it is over the contribution caps.
After 6 months Section 305-75 of the ITAA 1997 specifies how the assessable part of the transfer value will be taxed.
The post 1st July 2004 formula for the assessable growth component is:
where:
| Accumulated entitlement |
= |
The amount payable out of the paying fund immediately before the Relevant Day.
|
| Relevant Day |
= |
The latter of the day before becoming an Australian resident and the day before becoming a member of the overseas fund.
|
| Additional Contribution |
= |
Personal or employer contributions paid on or after the Relevant Day.
|
| Transfer Amount |
= |
Transferable amount before any deduction is made from that amount.
|
| Previously Exempt Amount |
= |
Sum of each of the amounts in respect of the relevant payment worked out under subsections (5) and (6) (basically transfers out to another eligible non-resident non-complying superannuation fund).
|
| Resident Days |
= |
Number of days of actual residency from the time the person became a resident of Australia up to and including the day on which the payment was made.
|
| Total Days |
= |
Number of days in period from and including the relevant day for the relevant payment, up to and including the day on which the payment was made.
|
All monies left in a UK investment vehicle other than those in an employer sponsored fund or monies less than A$50,000 fall under Foreign Investment Fund provisions. The full realised and unrealised gain in any year is assessable on one of three calculation bases. An attribution account needs to be maintained so that an offset can be claimed to ensure double taxation does not occur.
The level of reduction in assessable income is assumed in this case to be $0.
The provisions for the taxation of pensions received from overseas have not been altered and are contained in the ITAA 1936. In essence the overseas pension is included in the person’s assessable income – with a possible deduction for personal contributions, but no rebate.
The tax free threshold of $6,000, the tax free build up of the deferred pension in the UK, the Senior Australian tax offset etc mean that some pension from the UK may not be greatly disadvantaged to the tax free status of post age 60 Australian income streams.
UK basic state pension
For people reaching State Pension Age after 6 April 2010, the number of qualifying years to achieve a full Basic State Pension will drop to 30 years. A single year will now produce an entitlement - the 25% of years requirement is dropped. In 2009/10 the full Basic State Pension rate is £95.25 p.w. For more information click here to read our technical note.
The Value of Voluntary Contributions
Depending on personal circumstances it may be worthwhile for eligible Australian residents to make UK Basic State Pension voluntary contributions. We are currently developing an online calculator to evaluate this issue.