British Expats in New Zealand May Face the Wrath of the NZ Tax Man
British expats in New Zealand may face the wrath of the New Zealand tax man as many British pensioners who have settled in New Zealand believe that they do not have to pay NZ taxes on any UK pensions they have transferred to a 3rd party QROPS such as a QROPS transfer to Malta. These British expats may now found themselves having to fork out taxes on their pensions (of around 15%) and according to Australasian accounting firm WHK, British expats living in NZ who have not reported this offshore pension income are on the New Zealand Revenue’s hit list. Those expats who have transferred to a QROPS in NZ already need not worry as the fund administrators make sure that those taxes are paid, but please check with your QROPS trustee.
Temporary Tax Exemption on Foreign Income for New Migrants and Returning New Zealanders
From 1 April 2006, people becoming tax residents in New Zealand may qualify for a temporary tax exemption on some of their foreign income. This temporary tax exemption is available to those who qualify as a tax resident in New Zealand on or after 1 April 2006 and are new migrants or returning New Zealanders (transitional residents) who have not been resident for tax purposes in New Zealand for at least 10 years prior to their arrival in New Zealand.
The temporary tax exemption for foreign income is for 4 calendar years (up to 49 months). The exemption starts on the first calendar day of the month you qualify as a tax resident in New Zealand and is valid until the last calendar day of that month four years later. More can be found here, on the New Zealand’s Inland Revenue Site.
When your tax exemption ends after four years (up to 49 months), you must declare all foreign income on your annual income tax return (IR3 for individuals).
British Expats Resident Living in NZ and Holding an Offshore QROPS are in the Firing Line
“The New Zealand Inland Revenue has its sights on taxpayers who are not disclosing all their overseas income and is using its powers to obtain information from overseas jurisdictions in doing so,” according to WHK.
“The IR has a target list of individuals who have transferred their UK pension to New Zealand under the QROPS rules but have not returned income from the pension in New Zealand. Now is the time to make a voluntary disclosure, to minimise penalties, before Inland Revenue commences audits.”
So, what tax should a British expat pay on their QROPS in New Zealand?
Tax on QROPS in NZ
Growth on New Zealand pension funds:
NZ pension funds are taxed on the income produced (interest and dividends) and on some offshore capital gains. This is generally calculated and paid for you by the fund administrator.
Income from New Zealand pension funds:
Income and lump sums you take from New Zealand pension funds are regarded as “tax paid” – you will not be subject to any further New Zealand income tax charges.
Tax on QROPS in Malta and other 3rd Party Jurisdictions
From offshore superannuation funds the position becomes more complex and you can see the full article from Broadbase International
But in a nut shell, the recommendations are that anyone who transferred to an offshore QROPS (e.g. a QROPS in Malta) pay a voluntary tax on 15% of the transferred amount. “Taking the example of someone who transferred a pension fund of $500,000 on 31/03/11, they can either pay tax on $75,000 (approximately $24,750) or they can try to work out what their tax liability was in each of the years since 01/04/00 and make a voluntary disclosure with possible interest and penalties applying.”
Tax on UK SIPP’s for British Expats in NZ
Pensions in UK SIPP’s avoid these taxes until transfer.
Proposals for 3rd Party QROPS going forward
- Transfer the fund to a New Zealand and pay the proposed tax;
- Transfer your offshore QROPS (e.g. Malta QROPS, Guernsey QROPS) to a NZ QROPS
- Leave the fund intact in the UK and take benefits from the scheme (and possibly restrict the lump sum element) to reduce the up-front tax liability – but possibly pay more in the long run.
- Cease to be New Zealand tax resident before taking benefits
The full paper from the NZ Inland Revenue’s site can be found here.
Click here for the latest news of NZ pension transfers.
For more information and advice on QROPS for British Expats in NZ, please send an email to firstname.lastname@example.orgBritish Expats in New Zealand May Face Wrath of NZ Tax Man by Richard Malpass