ARE YOU TAX RESIDENT IN NEW ZEALAND AND DO YOU HAVE A UK REGISTERED PENSION?

UK INCOME TAX

Should your pension remain in the UK, payments from it would generally be taxed as earned income. From 6th April 2006 a single set of rules came into effect. Under this system, the tax treatment for all types of approved schemes, including occupational schemes, small self administered schemes, personal pensions, self-invested pension plans and retirement annuity contracts has been amalgamated into the rules for registered pension schemes.

Generally, non UK residents are subject to UK income tax on UK source income. Therefore on payment of a UK pension, income tax is charged at the individual’s marginal UK tax rate (current top rate 45%), but this could be different if you are resident in a country that has a Double Tax Agreement (DTA) with the UK, which New Zealand has (see overleaf).

UK TAXES ON DEATH

From 6th April 2011 lump sum death payments out of registered pension schemes to dependants aged below 75 are no longer subject to UK inheritance tax (IHT). Instead:

• lump sums paid after age 75 or after draw-down has started will be taxed at 55%1 but there is no further liability in the form of IHT,

• post-75 draw-downs that are not spent and remain in an estate on death may suffer a 40% IHT,

• lump sums paid out on death before age 75 where no draw-down has been made or lump-sum taken, are not taxable at all.

There are other tax charges that can apply to various payments made from registered pension schemes.

UK TAXATION IF YOUR PENSION REMAINS IN THE UK

IF SO, AND YOUR PENSION REMAINS IN THE UK, YOU SHOULD BE AWARE OF YOUR UK TAX OBLIGATIONS AND LIABILITIES. YOU SHOULD ALSO BE AWARE THAT OPPORTUNITIES EXIST TO TRANSFER THESE PENSION FUNDS OUT OF THE UK TO OTHER SECURE JURISDICTIONS UNDER HMRC’S FAVOURABLE QUALIFYING RECOGNISED OVERSEAS PENSION SCHEME (QROPS) REGIME.

LC 01/15

1On 19th March 2014, the UK budget announced that the 55% rate is to change. At the Conservative Party conference in September 2014 the changes were confirmed and are due to take effect from 6th April 2015 (Taxation of Pensions Bill). In essence, tax free up to lifetime allowance if death occurs before age 75, 45% tax charge on lump sum death benefit if death occurs after age 75, with beneficiaries drawdown taxed at their marginal rate.

NEW ZEALAND

QROPS

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IF YOUR UK PENSION IS TRANSFERRED TO A QROPS IN:

1. GIBRALTAR

New Zealand has no DTA with Gibraltar.The QROPS pension payments to you would be taxable in Gibraltar, currently at a rate of 2.5%. No UK income tax if not UK resident (for 5 tax years + or total withdrawals are below £100,000 from April 2015).No Gibraltar Inheritance Tax. Protection from UK IHT.Protection from 55%1 UK lump sum death payment charge, if not UK resident (and not UK resident for last 5 years before payment).

2. MALTA

New Zealand has no DTA with Malta. The QROPS pension payments to you would be taxable in Malta, currently at rates up to 35%. No UK income tax if not UK resident (for 5 tax years + or total withdrawals are below £100,000 from April 2015).No Maltese Inheritance Tax.Protection from UK IHT. Protection from 55%1 UK lump sum death payment charge, if not UK resident (and not UK resident for last 5 years before payment).

UK/NEW ZEALAND (DTA)

There is a DTA between the UK and New Zealand. This provides that pensions and similar remuneration in consideration of past employment or services, paid to a resident of New Zealand, and any annuity paid to a resident of New Zealand, shall be taxable only in New Zealand. See New Zealand tax position below.

NEW ZEALANDQROPS

NEW ZEALAND TAX POSITION

RESIDENCY AND TAX

Individuals tax resident in New Zealand are generally taxed on their worldwide income. This is at progressive rates from 10.5% to 33%. Non-resident individuals pay tax on New Zealand source income only. They do not pay tax on foreign income, even if remitted to New Zealand.An individual is resident in New Zealand if they are personally present for more than 183 days in any 12 month period or if they have a permanent place of abode in New Zealand.Individuals who move to New Zealand to live may qualify for a temporary tax exemption on foreign income as a transitional resident. All foreign sourced income will be exempt, except for employment income connected with employment performed while resident in New Zealand and income from services. This exemption applies for approximately the first 4 calendar years following becoming a New Zealand tax resident (either through a days count test or obtaining a permanent place of abode in New Zealand). To qualify an individual cannot have been tax resident in New Zealand during the previous 10 years. This exemption applies to foreign income even if it is remitted to New Zealand.

LC 01/15

1On 19th March 2014, the UK budget announced that the 55% rate is to change. At the Conservative Party conference in September 2014 the changes were confirmed and are due to take effect from 6th April 2015 (Taxation of Pensions Bill). In essence, tax free up to lifetime allowance if death occurs before age 75, 45% tax charge on lump sum death benefit if death occurs after age 75, with beneficiaries drawdown taxed at their marginal rate. Th

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For further information on the services that we provide please contact: STM GROUP PLC PO BOX 575

MONTAGU PAVILION 8-10 QUEENSWAY,

GIBRALTAR

TEL: +(350) 200 70713 FAX: +(350) 200 74081E-MAIL:INFO@STMGROUPPLC.COMWEBSITE: WWW.STMGROUPPLC.COM

1On 19th March 2014, the UK budget announced that the 55% rate is to change. At the Conservative Party conference in September 2014 the changes were confirmed and are due to take effect from 6th April 2015 (Taxation of Pensions Bill). In essence, tax free up to lifetime allowance if death occurs before age 75, 45% tax charge on lump sum death benefit if death occurs after age 75, with beneficiaries drawdown taxed at their marginal rate.

FOREIGN QROPS TAXATION

Therefore, generally foreign pension income is taxable in New Zealand on residents but not transitional residents (i.e. first 4 years of residency). However, there is also a 4 year exemption from tax on foreign superannuation. This is separate to the transitional residence regime i.e. it applies regardless of whether the person is a transitional resident or not. This is provided that the individual acquired the interest in the foreign superannuation scheme while they were a non-resident of New Zealand. It applies to all lump sum foreign superannuation withdrawals or transfers. When taxable, the foreign superannuation is taxed on withdrawal from the scheme (i.e. only when realised). It is taxed at the individual’s marginal tax rate (up to 33%), per the “schedule” or “formula” methods.New Zealand has always taxed foreign superannuation schemes, however, the method under which they are taxed has recently changed.Under the new rules, pension benefits will no longer be taxed on accrual under the Foreign Investment Fund (FIF) rules or on distribution from a company or a trust, although the FIF rules still apply if the individual is a resident at the time the superannuation interest is obtained. Further, if the individual has been using the FIF rules to date correctly, then they can choose to continue to use these rather than the new rules. Otherwise pension benefits will be taxed under a new set of rules specific to foreign superannuation. Lump sums will be taxed although there is no tax if the lump sum is withdrawn during the first 4 years of residence. An individual’s tax liability on a withdrawal will generally be calculated using a new “schedule method”, which is a particular fraction based on how long the individual has been a New Zealand resident before making the withdrawal. There is also a formula method that can be used if it is a defined benefit scheme. Under the formula method you are taxed on your actual gains between the end of your exemption period and the date you receive the lump sum.There is no different tax treatment for foreign occupational or foreign personal pension schemes. No tax relief applies to any pension contributions. Fringe benefits tax would not generally apply to a foreign pension scheme. If only applies if the individual is receiving contributions from their employer while they are a New Zealand tax resident.Tax residents are able to offset foreign tax paid on foreign income up to the amount of New Zealand tax payable on that income. This would apply to any Gibraltar or Malta tax paid on the foreign QROPS income.

NEW ZEALAND QROPS TAXATIONA transfer to a New Zealand QROPS is treated as a withdrawal for New Zealand tax purposes and taxed accordingly. Therefore, a transfer from a UK scheme or a Gibraltar or Malta QROPS to a New Zealand QROPS is treated in this way (specifically as a withdrawal from a foreign superannuation scheme). The transfer is subject to tax at the member’s marginal tax rate unless they meet certain exemptions, for example, tax exemption under the transitional residence regime, or the four year exemption from tax on foreign superannuation. The latter applies if the member is a transitional

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For further information on the services that we provide please contact: PO BOX 575

MONTAGU PAVILION 8-10 QUEENSWAY,

GIBRALTAR

TEL: +(350) 200 70713 FAX: +(350) 200 74081E-MAIL:INFO@STMGROUPPLC.COMWEBSITE: WWW.STMGROUPPLC.COM

1On 19th March 2014, the UK budget announced that the 55% rate is to change. At the Conservative Party conference in September 2014 the changes were confirmed and are due to take effect from 6th April 2015 (Taxation of Pensions Bill). In essence, tax free up to lifetime allowance if death occurs before age 75, 45% tax charge on lump sum death benefit if death occurs after age 75, with beneficiaries drawdown taxed at their marginal rate.

NEW ZEALANDQROPSTh

is g

ener

al in

form

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on t

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asis

of

our

unde

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the

cur

rent

legi

slat

ion

in N

ew Z

eala

nd a

s of

22nd

Jan

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201

5 an

d O

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for U

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Mal

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the

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prov

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be

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we

take

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OPTIONS FROM A TAX PERSPECTIVE:If the pension remains in the UK, then any pension paid in consideration of past employment or services or any annuity is liable to New Zealand tax, at rates up to 33% (New Zealand tax exemptions may apply), with the fund remaining exposed to the 55%1 lump sum death charge in UK.

By transferring to a Gibraltar QROPS any pension payment would be subject to 2.5% Gibraltar tax on income payments plus tax in New Zealand at up to 33% (if New Zealand tax resident and not transitional resident although foreign superannuation exemption may also apply). A foreign tax credit should be available in New Zealand for Gibraltar tax paid. Protection from the 55%1 UK death charge if long term non-UK resident (i.e. 5 years +).

By transferring to a Maltese QROPS, any pension payment would be subject to Maltese tax on income payments at up to 35% plus tax in New Zealand at up to 33% (if New Zealand tax resident and not transitional resident although foreign superannuation exemption may also apply). A foreign tax credit should be available in New Zealand for Maltese tax paid. Protection from the 55%1 UK death charge if long term non-UK resident (i.e. 5 years +).

By transferring to a New Zealand QROPS, the transfer in is treated as a withdrawal for New Zealand tax purposes and taxable at up to 33% (New Zealand tax exemptions may apply). New Zealand tax is charged on the investment growth (at up to 28%) annually. Any pension payments would not be subject to New Zealand tax. Protection from the 55%1 UK death charge if long term non-UK resident (i.e. 5 years +).

resident or not, although the member has to have acquired the interest in the foreign superannuation scheme while they were a non New Zealand resident. Non New Zealand residents are not liable to New Zealand tax on transfer of pension rights in a foreign pension scheme to a New Zealand QROPS.QROPS in New Zealand are taxed on their investment growth annually at rates from 10.5% to 28%. The 28% rate is the top Prescribed Investor Rate applying to Portfolio Investment Entity (PIE) investments. It would apply to all realised income/gains. As contributions to a New Zealand superannuation fund are after tax (i.e. they are taxed when they go into fund) there is no New Zealand tax on withdrawal. There is no tax on death.Members are unable to withdraw from a New Zealand fund until they reach the New Zealand retirement age (currently 65). For tax residents who establish a New Zealand QROPS and then later permanently leave New Zealand, they are able to transfer funds from a New Zealand fund (note there are some restrictions on government benefits received while being in the fund) relatively easily to either a Gibraltar or Malta QROPS.

OTHER TAXES AND DTAs

Inheritance, estate, net wealth and net worth taxes are not imposed in New Zealand.New Zealand has DTAs with 38 countries, including with the UK.