Seek Tax Advice
when Migrating to NZ

Article published in the United Kingdom, July 2012

Financial considerations will necessarily be part of planning your move to New Zealand. Your UK pension may be one of your key investments.

The current New Zealand tax rules applying to foreign pension schemes are complex and lead to inconsistent outcomes. New proposals are intended to simplify the New Zealand tax treatment of foreign pension schemes.

Currently, an interest in a UK retirement scheme may be taxed under the foreign investment fund (FIF) rules, with the result that you will need to pay tax on a deemed return, even before you become entitled to any payments from the scheme.

In other cases, the scheme may be exempt from the FIF rules but actual receipts, including lump sum payments, may be taxable. This will depend on the policy wording of the pension plan, the nature of the underlying investment entity and whether or not you can identify an exempt capital amount.

The New Zealand Inland Revenue Department (IRD) has released a discussion document which proposes to address these issues and simplify the tax laws applying to foreign pension schemes.

If the proposals become law, foreign superannuation schemes will no longer be taxed under the FIF rules but pensions will be taxed when payments are received. If a lump sum is received or the pension transferred, a proportion of that lump sum or transferred amount will be subject to tax in New Zealand, depending on how long you have been tax resident. For example, it is proposed that 0% of the lump sum would be taxable in the first two years after migration, 30% in years 5 to 8 and 100% after 25 years.

New migrants generally have a couple of options. The first is to transfer your UK pension scheme to a New Zealand qualifying recognised overseas pension scheme (QROPS). This enables you to move your pension to New Zealand without HMRC imposing a tax charge or penalties. Where possible, such a transfer should be made within the four-year tax exemption period applying to new migrants, or (if the new rules become law) within the first two years of tax residence in New Zealand, if the new migrant tax exemption does not apply. This will ensure that no amount of the transferred amount will be taxable. Investment returns will be taxed within the scheme but receipts will be tax-free upon retirement.

If you would rather leave your investment in the UK scheme, growth in that fund will not be taxed in New Zealand (under the proposed rules) but you will need to consider the tax impact on the withdrawal of a lump sum or payment of your pension or annuity upon reaching retirement.

We recommend seeking financial and tax advice on the tax treatment applying to your pension entitlements to ensure that you are able to make a decision that is right for you.

The above article is provided for general information purposes and does not constitute legal advice.

The partners at Jones Law are internationally qualified and practise in the areas of cross-border tax planning, estate planning and acquisition structuring.

We invite you to contact us at info@jones-law.co.nz to discuss your specific circumstances.

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