Specific Issues for UK Citizens

UK
Private
Pensions

UK pensions are generally not taxed in New Zealand before they are withdrawn and as such can continue grow in a tax deferred environment.

When withdrawn they will become taxable in New Zealand under either the foreign superannuation periodic regular or lump sum payments.

UK pensions can be transferred to New Zealand, but must be paid into a specialist product called a ‘Qualifying Overseas Pension Scheme’ or QROPS. It is technically possible to transfer to a non-QROPS, but this will most likely incur an unauthorised withdrawal charge, which can be up to 55% if any funds are withdrawn before the minimum age. This is currently 55 for most schemes but is scheduled to increase to 57 in April 2028.
There are numerous advisers in New Zealand offering to transfer UK pensions to a New Zealand QROPS. The main aim of which is to minimise the proportion of the transfer that will be subject to tax under the schedule or formula.

However, closer inspection of the full advantages and disadvantages can lead to the conclusion that some individuals would be better off leaving the funds to grow in the UK’s tax deferred environment, rather than transferring to New Zealand’s taxable environment. This depends on the type of scheme and is discussed further below

Defined
contribution
pensions

A defined contribution pension is a type of retirement account whereby you build up investment funds that can be used to provide retirement benefits. In many ways they are a fund of money that may be taken as a lump sum or converted into income at retirement.
For defined contribution pensions, the main considerations as to whether or not to transfer are:

– The fees charged by the existing UK scheme
– The investment strategy and expected return in UK and NZ after allowing for the difference in tax treatment
– The fees charged by the NZ QROPS, which are often significantly higher than the UK scheme
– Any upfront costs or fees associated with transfer (such as fees payable to the New Zealand adviser or QROPS)

The alternative option to transferring is to leave the funds in the UK and take them directly when you become eligible. In some cases this can be the preferred approach, but does depend on each investors individual situation.

Defined
benefit
pensions

A defined benefit (sometimes called a final salary scheme), is a type of pension whereby you receive a promised level pension from your retirement age. These pensions are often considered more valuable than defined contribution pensions, due to the ‘guaranteed nature’ of the benefits, Some defined benefit pensions are no longer able to be transferred to a to a defined contribution arrangement like a QROPS, but most do still allow transfers.

The transfer process for defined benefit pensions is a lot more convoluted and because you are changing the nature of the benefits from a ‘promised pension’, to a ‘pot of money’ (without any guarantees), there is a lot more for individuals to consider.

The UK government now requires individuals with defined benefit pensions with Cash Equivalent Transfer Values (CETVs) worth more than £30,000 to receive specialist defined benefit pension transfer from a UK adviser before the scheme administer will allow the transfer to proceed.

Most people would agree with the intention of the UK regulations are sound and aim to protect investors from i.) themselves and ii.) unscrupulous advisers looking to make a quick buck on the transfer. However, anyone who has been through a defined benefit transfer will tell you that the whole transfer process is quite painful.
When members of defined benefit schemes receive their CETVs, their eyes tend to widen as they see the full value of their benefits and start thinking about how they will spend it.

This is quite natural of course, but before going down the transfer route, individuals should think carefully about their options and the secured nature of benefits they will be giving up (most pensions are guaranteed for your lifetime and that of your spouse).

UK pensions are a complicated area and what is right for one person, may not be right for another. As such investors should seek specialist advice about their options

UK
Inheritance
Tax

Both the UK and New Zealand follow OECD conventions for determining your tax status based on residency and have a DTA in place that should ensure that you are only tax resident in either UK or New Zealand at any one time.

Once you become New Zealand tax resident, New Zealand will have primary taxing rights on your worldwide income. This means the UK shouldn’t tax any investments you retain in the UK and only New Zealand tax should apply. However, in practice many financial institutions will continue to make tax deductions on assets you leave in the UK. Meaning that you may have to submit a UK tax return to reclaim any tax paid.
UK Inheritance Tax is one particular area where you should treat with caution. It is taxed on your worldwide assets at the rate of 40% over a threshold referred to as the ‘nil rate band’. Once described by Nigel Lawson (UK’s Chancellor of the Exchequer under Prime Minister Margaret Thatcher from 1983 to 1989) as a voluntary tax, the rules have been significantly tightened over the years, meaning that it is much harder to avoid.

If you permanently emigrate from UK, ordinarily you shouldn’t be subject to UK Inheritance Tax. However, His Majesty’s Revenue & Customs (HMRC) may look for evidence that your move overseas was temporary and that it was your intention to return to the UK, such as retaining property or other interests in UK.

The simplest option to avoid UK inheritance tax is to sever your financial ties with UK and move all your assets to New Zealand. For some investors this will not be desirable or feasible and in which case you should consult with a UK tax adviser.

More information and Professional Advice

Seeking professional advice from a tax expert with knowledge of both New Zealand’s tax laws, your home country’s tax regulations and the impact of these agreements, is highly recommended to ensure compliance and ensure you organise your affairs efficiently.

You can find more information on New Zealand’s tax system, including a range of tax guides can be found from New Zealand’s Inland Revenue Service (IRD) www.ird.govt.nz.
  • Maurice Woodham Ltd (FSP112724 trading as Pacific Wealth), holds a license issued by the Financial Markets Authority (FMA) to provide financial advice.
  • Registered Address: 18 Fitzgerald Avenue, Christchurch Central 8011
  • 03 366 4220
  • info@pacificwealth.co.nz

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