HM Revenue & Customs has confirmed it will make changes to current legislation to allow Australian schemes to continue to be included as Qualified Recognised Overseas Pension Schemes (QROPS) where appropriate.
Changes to the Australian pension system, which are scheduled to come into force on 1 July, will include the introduction of a limit on the amount of money which can be transferred into a Superannuation scheme to AU$150,000 or £60,000 a year.
However, according to Standard Life the changes will cause problems for transfers with the UK as in addition "broadly speaking" the Australian system will have no tax relief on most contributions but at retirement the benefits will be paid tax free, and can even be taken as a lump sum.
This means Australian schemes currently will not qualify as a QROPS - which is an overseas scheme that agrees to meet the tax regulations stated by HMRC, in order to make it an acceptable vehicle for UK pension transfers abroad.
As in this case the new system would invalidate ‘Primary Condition 2’ of the appropriate regulations which require the scheme to be "established in a country or territory where there is a system of taxation of personal income under which tax relief is available in respect of pensions”.
This is because HMRC is concerned if the pension is built up in the UK, where tax relief is provided during the accumulation phase, and then the fund is transferred to Australia for payment - where no tax is levied on income – no tax is being paid on the contributions.
And as there are currently around 1.3 million British expatriates living in Australia, with 23,000 emigrating in 2006 alone, the possibility of a complete ban between UK and Australian pension schemes could cause significant problems, particularly for High Net Worth clients.
As a result, Standard Life says HMRC has confirmed it will make changes to the legislation to transfers to Australia can continue after 1 July this year, but although no draft regulations have yet been published, HMRC says changes will be in place by 29 June.
Andrew Tully, marketing technical manger at Standard Life, says its good news that Australian pension schemes can continue to receive tax-efficient transfers from the UK after 30 June.
But he warns: “However, the position is complex, for example some people may have to phase in their transfer over a number of years. Therefore people in the process of emigrating to Australia should take advice and consider carefully whether to transfer their pension benefits overseas.”
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