Advisers have been caught on the hop by the Inland Revenue’s new stance on pension transfers, which could leave some of their clients facing six-figure tax bills.
by Niko Kloeten
Until recently it’s been thought that UK superannuation fund transfers aren’t taxable, but the IRD has put out a proposal that would see a certain percentage of each transfer treated as income based on a sliding scale of how long the owner of the funds had lived in New Zealand.
Those who transfer their funds across within four years of migrating to New Zealand would pay no tax, while those who have lived in the country more than 25 years at the time of transfer face having 33% of their money taken by the IRD, which would treat 100% of the transfer as income.
The IRD has offered two options for those potentially affected: apply the rules that existed in previous years, or; voluntarily pay tax on 15% of the transferred amount.
Leech & Partners tax adviser Chris Heffernan described the tax situation around previous transfers as “confused” and said there is little guidance from the IRD on the issue.
“The IRD have indicated that they think many people have not complied with the tax rules before now, but I am not entirely convinced that the IRD are certain what those tax rules are, or were.”
Heffernan described the move as a “tax grab” and said there was potential for a “flight of capital from New Zealand” as a result.
“If you’ve got a $1 million pension fund and don’t take advice, you could be faced with a tax bill of up to $330,000 if you bring it over here.”
However, Britannia Financial Services adviser David Milner said the proposal seemed “pretty damn fair” and would create a “level playing field” between those who had left their money in pension funds in the UK and those who had moved their money here.
“You’ve got people getting gains tax-free while people in similar regimes in New Zealand having been paying tax on their PIEs,” he said.
Milner said the big questions would be over the formula and the question of how the tax is actually paid: for large amounts the tax would have to be paid from the funds themselves.
The IRD has called for submissions, which are due by September 30.