Understanding the New Zealand tax system will be important for your financial planning – to make sure that you know what to expect, that you don’t incur any tax liabilities you weren’t anticipating, and to get the most out of your hard-earned retirement savings.
Here are some things to note about how New Zealand taxes UK pensions.
Drawing income in New Zealand from a UK investment
If you have a defined benefit or defined contribution pension scheme in the UK and opt to leave the investment there, but draw down a stream of income while living in New Zealand, that money will have to be included in your New Zealand tax return and tax paid on that.
New Zealand has a marginal tax system which means that you will pay 10.5 percent tax on your first $15,600 of income, 17.5 percent on the income between $15,601 and $53,500, 30 percent on income between $53,501 and $78,100, 33 percent on earnings between $78,101 and $180,000 and 39 percent on anything earned beyond that.
If you leave your money in the UK when the option to transfer it to New Zealand is available, you may find that the investment is subject to New Zealand’s foreign investment fund (FIF) rules. These assume that your investment grows at 5 percent a year and you pay tax on the 5 percent growth.
If you are eligible to receive a state pension from the UK, those payments will generally offset any New Zealand state pension that you are entitled to.
If you move the entire scheme
It is possible to move your full UK pension savings into a similar scheme in New Zealand.
As long as you move to a recognised overseas pension scheme (ROPS), you will not have to pay the 55 percent UK tax that might apply if you shifted the money to a non-recognised scheme.
For the first four years that you are in New Zealand, you can move your pension without incurring any tax, provided that the UK scheme is one that you acquired while you were not a New Zealand tax resident.
After that point, the tax that you could be required to pay on the transfer increases each year. Until you are 55, you cannot use your pension funds to pay the tax liability.
Once the transfer is made, though, the scheme is not “tax free”. New Zealand retirement savings schemes tax investment returns at the fund level.
Payments from the scheme are then tax free and you do not need to declare the income in your tax return.
While pension schemes in the UK have tax exempt contributions and growth in the scheme, and taxed withdrawals, in New Zealand contributions are from taxed income, investment returns are taxed but payments and withdrawals are exempt from tax.
In the UK, there can be tax liabilities for people who inherit a pension, but there is no such tax in New Zealand, for New Zealand investments. People in New Zealand who inherit a pension from overseas can be liable for tax on it.
Expert advice is important
Management of your UK pension from New Zealand can be complex.
It will be important to seek professional, independent advice early on to help you understand the tax implications of your investment structures, and the options available to you.
A pension transfer can often make sense, but it will not be right for everyone, and needs to be managed carefully.
The team at Pension Transfers can help you to look at what might suit your circumstances and determine a strategy that aligns with your retirement goals.
If you would like to discuss what might be appropriate, get in touch with us.
Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current developments or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.