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03 Jun 2015

Pensioners Moving Down Under Could Receive 55% Tax Shock

As an unintentional result of the new pensions reforms that came into force this April, retired UK residents planning to move to Australia or New Zealand could face a staggering 55% tax on their pension pots, AOL Money reports.

It´s common for expats to transfer their pensions because the relatively generous UK rules mean that they can move the pension to their new home, but have their income taxed at the local rate - which is often less than in the UK.

However, it has recently arisen that as part of the new legislation, pension schemes are forbidden from allowing people to withdraw any of their pension savings before the age of 55, apart from when medical reasons dictate it.

This means that when moving to Australia or New Zealand - where residents can access their pension before the age of 55 if they are in financial difficulty - the taxman does not consider the pension scheme a “qualifying recognised overseas pension scheme.”

Therefore, expats transferring their cash into these pensions may be viewed as having moved their funds to an unrecognised scheme and face a 55% tax hit as a result.

In order to deal with this issue, HMRC has written to pension providers in Australia and New Zealand to explain the situation. It is hoped that schemes will change their guidelines in line with the new measures, although pensions adviser Montfort International told The Telegraph that this was ‘unlikely´.

More likely is that these overseas schemes will arrange an exemption with the UK taxman; but these changes won´t be made immediately, so those planning to retire ‘down under´ should be aware of the risks now.

In fact, experts are advising that anyone who began the transferral process - which can take three to four months - after 6 April 2015, should pause it until either an exemption is agreed or they receive confirmation from their pension scheme that they qualify under UK legislation. Transfers that began before 6 April will not be affected.

Copyright M2 Bespoke 2015

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