UK tax change could hit Kiwis

Jarod Chisholm
Jarod Chisholm
Thousands of New Zealand residents could have potential tax problems if they have worked in the United Kingdom, WHK Dunedin tax principal Jarod Chisholm says.

Unsophisticated taxpayers were the most likely not to know they had a tax issue that went back to 2006-07, he said.

A change of rules in the UK to employment-related UK pensions meant previous exemptions from the Foreign Investment Fund (FIF) rules no longer applied.

In the past couple of years, there had been advertisements regarding the transfer of UK pensions to New Zealand. The transfers had largely come about because of the introduction of the Qualifying Recognised Overseas Pension Scheme in the UK in April 2007, Mr Chisholm said.

The purpose of the scheme was to allow non-UK tax residents who were overseas and who had a UK pension to transfer that pension asset to their current country of residence.

"The main issue with this is that it was generally accepted that this was not taxable, and the New Zealand Inland Revenue Department has only confirmed their treatment this year.

"Consequently, the change results in the exemption not applying from April 2006. That means taxpayers will have to go back and correct returns they otherwise believed were correct. This will obviously result in additional cost for taxpayers, especially given the complexities of the FIF regime and the associated calculations involved."

Mr Chisholm had dealt with several clients and managed a large refund for one client.

Nurses, police staff and teachers often had pension schemes in the UK but anyone who worked there and signed up to an employment-related scheme would be caught by the change of rules, he said.

That would involve thousands of New Zealanders who had done their "OE" in the UK.

The majority of UK pensions - other than State pensions - would be taxed under the FIF rules, unless the fund had a value of less than $50,000.

If a former UK resident had transferred their pension to New Zealand, that pension would cease to be a FIF on the date the transfer occurred. If the former resident held the fund on April 26, 2006, they would be taxed on any gains or losses from that date until the date of the transfer.

"We understand from the IRD that it has recently become aware of this change and is now in the process of obtaining information in relation to taxpayers' holdings in these funds.

They have advised us that taxpayers who have transferred their UK pensions to New Zealand during this time should determine the income or loss and disclose this to the IRD."

While that might seem like bad news, due to the foreign exchange rates over those periods, the result might be a loss for the taxpayer. WHK had been successful in obtaining refunds for clients in that situation, Mr Chisholm said.

 

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