In particular, they say, they expect many current residents of New Zealand – who still have pensions back in the UK, but who do not intend to return to live there – to seek to take advantage of a “partial amnesty” that has been included in the legislation.
One reason is because it is widely believed that a significant number of such individuals have either not been paying the correct amount of tax they owe on their foreign pension income, or have been failing to report their foreign pension income at all.
That’s because until now, the rules have been difficult to understand, and at odds with the British system for taxing pensions, according to Stephen Ward, managing director of Alicante, Spain-based Premier Pension Solutions, which advises UK residents on their pension options when they look to move abroad for good.
“The UK and most other countries do not tax money, up to a certain amount, that is invested in a pension plan, or during the savings period – the tax privileges come to an end when the individual begins to receive his or her payments,” Ward explains.
“New Zealand is the opposite. Tax is paid during the savings period, but not on withdrawals from retirement savings. This provides an advantage in retirement, and a potential advantage to migrants looking to retire in New Zealand.”
What is about to change is that New Zealand is making simpler the basis on which pensions and lump sums (including transfers) from overseas pension schemes are taxed.
And for those who owed but have not been paying tax on their overseas pensions and lump sums, New Zealand is offering a partial amnesty to lump sums or transfers from foreign schemes that took place from 1 Jan 2000 to now, and to any that take place between now and 31 March 2014, (or possibly later, if the legislation is delayed).
To be eligible for this amnesty, an individual must include the details in his or her 2013/2014 or 2014/2015 tax return, Ward says.
“We are expecting a lot of people will be interested in this, because it means that instead of paying tax at up to 33% on a transfer from a UK pension scheme to a New Zealand QROPS, by acting quickly, the tax burden can be reduced to 5% or less.”
For a more detailed explanation of how the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Bill will affect individuals in New Zealand who have UK pensions or who have transferred their UK pensions there sometime in the past 13 years, click here.
To see more of Stephen Ward’s thoughts on the changes, click here.
To read an analysis of the proposed new system for taxing foreign pensions by lawyer Michael Reason, of Reason & Partners LLP, which appeared here last year, click here.
