If you have worked in overseas at any stage of your career you may have contributed to a foreign superannuation scheme.
With some 4000 immigrants from the UK each year, along with countless New Zealanders returning home, repatriating this money to New Zealand is a common question. There are even more expatritriots coming back from Australia each year.
New Zealand tax residents are taxed on their worldwide income each year. If you are enrolled in Kiwisaver, you’ll notice how tax is applied at source every year so that when you come to withdraw your contributions at retirement there is no tax to pay. This is not the same around the world. Some countries only tax investments when they are withdrawn.
Effective from 1 April, 2010, any an expat who has worked in Australia or are an Australian migrating to New Zealand is free to move their superannuation to New Zealand or make a withdrawal without any New Zealand tax to pay.
However, if you transfer a lump sum from another country’s scheme into an Australian scheme, this does attract tax.
There is now the option of transferring lump sums directly into an approved super scheme in New Zealand like Kiwisaver, or vice versa if you are emigrating to Australia.
The system in the United Kingdom is different. Her Majesty’s Revenue and Customs taxes superannuation upon withdrawal, not during the period of the scheme.
Prior to 1 April, 2014, the Foreign Investment Fund (FIF) rules applied. If you accounted for income from your scheme using this method previous you’ll continue to do so. These rules are complex so no doubt you will be filing using a tax agent or accountant.
From 1 April, 2014 there are two main methods for determining the tax to pay.
The first is the schedule method and by far the easiest to apply. You simply deduct a proportion of the gross amount and pay that as income tax in the year that you withdraw the lump sum. Bear in mind that if you have made contributions whilst a tax resident in New Zealand this may affect the amount of tax you need to pay.
The percentage is determined by how long you have been a tax resident in New Zealand. You are exempt from paying tax on your worldwide income for the first four years you are a tax resident. We are able to calculate this proportion for you.
The formula method is more complex but is worth considering. This method only taxes you on the actual gains on your foreign super scheme between the date of the expiry of the four year exemption and when you actually receive the lump sum.
It is only available if you have a defined contribution scheme so please contact us if you would like more information.
If you want assistance in withdrawing funds from the United Kingdom, there are a number of providers of varying quality. We favour GB Pensions and you can access their website here.
What if you haven’t declared income from previous years?
You have two options if you took no action when withdrawing lump sums in previous years (1 January, 2000 to 31 March, 2014)
The first option is to include a flat 15% of your lump sum withdrawal your IR3 return for the period ending 31 March 2014 or 2015.
Alternatively you may have a lesser amount of tax owing and you can ask Inland Revenue to amend previous tax returns. Bear in mind that this option may trigger penalties and interest and we strongly suggest you seek advice first.
Other countries have similar rules to the United Kingdom so if you are a migrant from Europe or the United States, you may find similar rules apply. New Zealand has mutual tax treaty agreements with many countries. These Double Tax Agreements often contain specific rules around the impact of New Zealand taxation on any lump sum payment. In some instances you need to apply directly to your country of origin for a refund from that country’s tax authority.