UK govt to dig deeper on pension transfers
Recipients of UK pension transfers may find themselves having to defend charges of misuse of the funds after the UK tax authority indicated it may examine transfers used to purchase property or life insurance in Australia.
Under conditions of pension transfers the UK tax authority — HMRC — requires a 10 year reporting window on transfers, with the 10 year window first being applied from 2006.
As a result of changes to UK tax laws, which directly affect pension transfers to Australia, HMRC has begun to examine transfers made up to and after the new changes effectively freezing any moves of funds between the two nations.
At the same time all but one of 1600 superannuation funds have been removed from a list of complying funds able to receive pension transfers.
However Montfort International, managing director, Geraint Davies said the examination by HMRC of recent pension transfers has discovered other inappropriate uses of transferred funds stemming back to 2006 that may trigger large tax burdens for ex-pat British citizens who transferred the funds.
Davies said the tax, levied at 55 per cent — the standard amount for an inappropriate transfer or use of funds under UK law — may be applied to people who used pension funds to purchase residential property or engaged in non-arm's length lending within a self-managed superannuation fund.
Self-managed superannuation funds made up the majority of the 1600 funds which have received funds and are currently banned from receiving any further pension transfers.
People who purchased life insurance within any type of superannuation fund may also be liable to pay the tax with Davies stating HMRC rules have restricted the use of transferred pensions for these three purposes since 2006.
He stated that in discussions with HMRC the tax authority indicated it would examine transfers during the reporting period after becoming concerned over the recent transfer arrangements.
Davies said HMRC may be able to claim old age pensions, property and other assets still held in the UK and was undertaking the review to avoid potential pensions rorts and advice failures.
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