UK Pension Transfers

UK Pension Transfer Service

Wealth Depot provides advice and assistance to transfer UK pension rights to a Recognised Overseas Pension Scheme [ROPS] in Australia.

What is a ROPS?

Any transfer of UK benefits to an overseas scheme is only permitted if the transfer is going to a scheme that has been registered with HM Revenue & Customs (HMRC).

This is a QROPS scheme, and to be a QROPS, the scheme must meet the ROPS (Recognised Overseas Pension Scheme) legislative requirements and the scheme must also agree to report specific matters to HMRC.

For General Information please refer to HMRC Overseas Pension factsheets located at: https://www.gov.uk/guidance/overseas-pensions-tell-hmrc-youre-a-qrops

UK Defined Benefit scheme transfers after 6 April 2015

• Transfers from “unfunded” defined benefit Government schemes (e.g.  NHS, Teaches, police, army) will no longer be permitted.
• Transfers from “funded” defined benefit Government schemes (e.g. Local government schemes) will still be permitted, however transfer values may be reduced.
• Transfers from funded defined benefit schemes will still be permitted. UK independent financial advice must be received prior to transfer. The adviser must also be independent of the scheme and must be registered in the UK, therefore an adviser registered in Australia only, is not authorised to provide this advice.

Registration and reporting

In addition to registration, the scheme needs to meet specific reporting and access requirements that range from a period of 5 (10 years from 6 April 2017) after you leave UK residency and 10 years after you make a transfer of benefits from the UK.

Australian treatment on transfer

The value of the UK pension fund benefit at the date of residency in Australia is treated as a Non-Concessional Contribution (NCC) and not taxed in the Australian fund when received.

The increase in value between the date of residence and the date the funds are transferred to Australia is tax free if transferred within 6 months of tax residence. After 6 months the increase in value is taxed at a rate of 15% within the Australian fund.

Application of Contribution Limits on amount received in Australia.

Any transfer into an Australian fund above Australian contribution limits for Non-Concessional Contributions, $100,000 for 2017/18 or the three year bring forward rule of $300,000.

Amounts over this limit will be subject to a penalty rate of tax and therefore consideration should be given to a staged transfer strategy over a period of years in such circumstances.

There is no cap on the Concessional Contribution (CC) part, i.e. the growth portion, when it applies to an overseas super transfer.

Restrictions once in Australia

There will be the normal superannuation restrictions on benefits within Australia. As the transfer has come from the UK, there are restrictions on transferring to another scheme, in that any scheme that hold the funds must be a QROPS/ROPS registered scheme.

The SMSF must report (to HMRC for a period of 10 years from the date of transfer from the UK), certain matters, e.g. withdrawals, pension commencements and transfers.  If a transfer occurs from a QROPS/ROPS scheme to a non QROPS/ROPS scheme inside the reporting period there may be penalty tax of 40% and the existing fund will lose it QROPS/ROPS status.

Investment restrictions (residential property and collectables)

HMRC do not allow investments in “Taxable Property”. This is essentially residential property, holiday homes, timeshares. Therefore if you register your SMSF as a QROPS/ROPS an investment in residential property will be a breach, and there will be a substantial tax penalty.

The same restriction also applies to collectables (art, coins, stamps, boats, cars etc).

These restrictions are ongoing and do not expire when the QROPS/ROPS reporting requirements cease. Therefore, you need to consider these investment restrictions before you decide to register as a ROPS and also with the future operation of your QROPS/ROPS.

The fact a SMSF may invest in these types of investment under the Australian SIS rules is not relevant. The HMRC rules do not allow these types of investment and the restrictions  will therefore apply to the SMSF.

Residency

Residence for the purposes of the overseas transfer is treated as “tax residence”, so it is generally the date of arrival to take up permanent residence. This date may be different from actual immigration residence as someone may be on a temporary visa before becoming a permanent resident, which may occur sometime later.

A transfer before becoming a permanent resident may not be prudent due to restrictions on transferring super out of Australia. Specialist advice should be sought regarding this issue.

Returning to the UK to resume residence can have significant implications. This is because a payment from a QROPS/ROPS fund to a UK resident may result in an unauthorised payments charge and penalty tax of 40%. Therefore you need to consider your longer term plans and if returning to the UK is a reasonable prospect, then it may be best not to transfer your UK benefits to Australia.

Act in advance

As there is only a 6 month window to transfer benefits to an Australia scheme tax free, clients need to consider the options early. UK residents can speed up this process by requesting a Cash Equivalent Transfer Value (CETV) from their current UK scheme(s) the day they depart the UK (have it posted to you in Australia via airmail or posted to a reliable UK friend that can quickly forward it to you). UK schemes must provide a CETV once a year free of charge, additional CETV’s may result in a fee.