Australian financial planners providing advice on transferring UK pensions have received a leg up from the Government’s changes to tax law allowing the transfer of pensions at 15 per cent rather than marginal tax rates.
The move is part of a series of changes which still maintains the original six month tax-free window on the growth component of UK pensions, but drops the tax on any transfers after that time to 15 per cent, which is charged within eligible superannuation funds and no longer paid directly by the pension holder.
The changes to the Income Tax Assessment Act 1936 will open up access to an estimated $1 billion in UK pension funds, with Advance Asset Management head of technical services Matthew Esler saying the tax changes will inspire more people to seek financial planning advice.
“There are risks in transferring to Australia, and it’s not really possible to do this without an understanding of the tax treatment of pension in the UK and Australia,” Esler says.
Esler says that transfers can take more than six months to be completed, and this has been a disincentive in the past.
“Some people will take advantage of the change immediately — some have been deterred previously, put off by the fact that they’ve been taxed at an individual level,” Esler says.
Geraint Davies, managing director of UK-based financial planning group Montfort International which has worked with local advisers on this issue, says the change is nothing short of dynamite, and ends the days of Australian advisers acting in isolation from other countries’ superannuation systems.
Despite the changes, Davies says the way current exchange rates, tax and visa implications are handled will remain critical in the transfer process.
