IRD Clarify their Stance on Taxing Frozen UK Pensions

Posted: 21st October 2011

Many UK ex-pats and returning Kiwi's residing in New Zealand hold an interest in UK based superannuation/pension schemes. Historically, most are likely to have considered (if they gave it any thought at all) that their UK retirement nest-egg is of no consequence from an NZ income tax perspective until value is actually received in the form of a pension or lump sum at retirement.

The IRD have explained that in their view interests held by many NZ residents may in fact be taxable in New Zealand on an annual basis under the foreign investment fund (FIF) regime, irrespective of the fact that no value is actually received until for example a pension is drawn at retirement.

Furthermore, the IRD consider that this has been the case since 6 April 2006 with the consequence that there could be tax owing for prior years for individuals holding such pension scheme interests.  The IRD have however recently 'put on ice' audit activity regarding prior years liabilities, pending a ministerial review of the law.

Individuals holding funds in UK schemes should consult with their tax advisor to evaluate the position specific to their own circumstances. There are limited exceptions to the above general statement which require consideration on a case by case basis.

If not already considered, individuals may now feel more inclined to transfer UK funds into NZ QROPS, to take those funds outside of the FIF taxing provisions, and benefit from enhanced accessibility features present in many NZ Superannuation schemes.  Certainly those new to New Zealand need to seriously consider a transfer prior to the end of their transitional residence period.

Please contact James McQuaid if you would like any further information on (09) 308 4058 or james.mcquaid@tbag.co.nz

Source: Tony Brokenshire
Director
Great British Pensions Limited