How Australian Tax Rules are Impacting Pension Choices for British Expats



Many of you may remember when the Australian Government faced significant backlash for it’s intention to introduce a A$500,000 cap on the amount of money one could transfer to income stream within the superannuation system. Whilst this policy didn’t eventually materialise, there are still a number of complex laws that you should be made aware of before migrating to Australia and taking your pension plan with you.

Most Australian pensions do not meet HMRC standards to qualify as QROPs and this is largely due to allowing investors to access funds before the age of 55. In fact, at the time of writing, there is currently just one retail super that does fully match the QROPS standards outlined in British legislation.

With this in mind, what are the rules that you need to consider and how will they impact on your pension and investment plans?

What are the Australian Pension Rules?

Contributions to the Australian pension system is made up of two parts, concessional and non-concessional contributions.

  • Concessional contributions are paid prior to taxation and are taxed within the superannuation scheme on receipt at the ‘concessional’ rate of 15%. Concessional contributions are limited to A$25,000 currently but that cap is expected to be increased to A$27,500 in July this year
  • Non-Concessional – are contributions from your income (after other taxation). You can invest up to A$100,000 per annum and can bring forward your allowance for 2 additional years provided you are under the age of 65 and you have less than A$1.6 million in superannuation at the time.

The most significant difference between the UK and Australian systems is in the method of taxation. Under the Australian system, you pay your tax liabilities when investing into the superannuation scheme, whereas in the UK the standard is to receive tax relief on investments before being taxed on your pension income.

The Australian system provides tax-free income in retirement provided a condition of release has been met. This means that during the investment and accumulation phase, income and investment gains are taxed. It is worth remembering that concessional contributions are paid pre-tax and so receive tax relief as a result, but the investment account itself will then pay the 15% concessional tax rate.

Upon retirement in Australia – your superannuation pot is converted into an income stream that is tax-free provided it is under the maximum lifetime allowance. In practice this means that should your investment surpass the 1.6 million limit; the additional funds will then be subject to Australia’s highest income tax rate when you withdraw the funds.

Transferring a British Pension

It is not possible to simply transfer a UK pension to an Australian recognised overseas pension scheme (“ROPS”) until you reach age 55 due to HMRC pension policy. Prior to that age there may be other options, depending on your circumstances. Even from the age 55 when you will qualify, you need to be aware of the limitations.

The value of the pension being transferred must be calculated on two dates. Once at the date of entry into Australia as a resident and the other at the date of transfer. It is also crucially important to convert both amounts to Australian Dollars at the current exchange rate at the time of the calculation.

The AUD value at the date of becoming resident will become your non-concessional contribution and should be below A$100,000 or if you are bringing forward your allowance from future years, up to A$300,000. The value at the date of transfer will include your total investment contribution. Once you have this, remove the value at the date of residency and this is your concessional contribution and is taxed in the super at 15%. Importantly, this ‘concessional contribution’ is not subject to the aforementioned annual cap.

Even where products have previously been assigned as QROPS, they may be open to other limitations and so it is important to have a full understanding of the rules in place as the time of your investment.

Whilst the rules limit the ability to transfer pensions immediately, they do not stop individuals from maintaining pensions as a separate asset, this is one of the many options available to you should your heart be set on a relocation to Australia.

It is also important to understand that there are exceptions in place, primarily surrounding ill-health and these are frequently dealt with on a case-by-case basis.

The Solutions for Expats

If you are considering a relocation to Australia we would recommend speaking to a Forth Capital adviser to allow you to manage your move in the most cost-effective way. Their advice will change depending on:

  • When you relocated (or intend to move to) Australia
  • How long you have lived there
  • Your assets and where they are located

If you are considering a move to Australia in the future, we’d recommend planning your finances and pension to allow you to minimise your liabilities and maximise your returns based on the current rules and legislation in both the UK and Australia.

Mark Plummer

The Author

Mark Plummer

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