Tax and UK occupational pension question.

[three to go]

Does anyone know how the 4 year tax exemption rule for new immigrants applies to UK occupational pensions - and does it make a difference where the pension is paid? (ie UK bank account or NZ bank account?)

I have searched but can't find anything specifically in relation to the 4 year rule.

Thanks in advance - any insight really welcome.

[rogercruse]

Over all working lives we've collected a number of occupational pensions, so we're going to get one of the many pension transfer companies to work out the value of each of these and what the best solution for us about collecting them in UK or NZ.

[gonzo]

Interesting thread- I thought the four year rule only applied to income from savings my assumption would be (probably incorrectly) that payment from a final salary super scheme if that is what we are talking about would be treated as wages/salary not as unearnt income and therefore subject to tax at normal NZ rates, however will be fascinating to see what other forum members come up with. Have you looked at the IRD website as there is some useful info there? Interestingly when I was in NZ there did not seem to be any concept of annuities as in the UK my understanding was that pension pots were taxed on income as it arose but not capital gain. Withdrawals from that pot are not subject to tax and that anything remaining in that pot on death can be left to ones beneficiaries effectively tax free as there is no IHT in NZ although capital transfers between living individuals may be subject to transfer tax.

[James 1077]

I haven't looked at this before but would assume that if you are receiving income from a final-salary pension held overseas then this would be non-taxable under the transitional tax exemption. My argument would be that this would fall under the heading of "Income from employment performed overseas before coming to New Zealand" as this could arguably be deferred income from your UK employment.

Similar income from a money purchase pension shouldn't be taxable as it is investment income from overseas investments.

Probably best to give the IRD a call and ask them directly though - +64 4 801 9973.

It shouldn't make a difference as to whether it is paid into a UK account or NZ one.

I believe, however, that in most cases HMRC in the UK will take their cut from the final salary pension before you get your cash. When my father retired he was paying UK income tax as his pension was coming from the UK based company that he worked overseas for - it took me about 6 months to persuade HMRC to stop deducting income tax and it was only possible as Dad had only worked in the UK for a very short period of time.

[catt]

We are on occ pensions and my hubby is on state pension and we dont pay NZ tax for the first 4 years but the UK take their cut for the first two and then you claim it back from them. So in effect its tax free for the first 4 years. In saying that any savings you have in the bank is NZ taxable as is all income earned here if your already getting your tax free period on pensions.

There was a thread about 12 months ago if my memory serves me correctly about 4 years tax free or child benefit (equivalent) .....seems that all new immigrants get the choice.........if you have no kids then probably the 4 years tax free is a good option. As said previously give the IRD a call they are very very helpful and certainly nothing like the UK lot who were always unhelpful to the extreme. Good luck

[Silverwing86]

Here are the official rules for the four year tax exemption as quoted by the IRD:

Exempt types of foreign income Types of foreign income which are temporarily exempt from tax in New Zealand:

• Controlled foreign company income that is attributed under New Zealand's Controlled Foreign Company (CFC) rules
• Foreign investment fund income that is attributed under New Zealand's Foreign Investment Fund (FIF) rules (including foreign superannuation)
• Non-resident withholding tax (for example on foreign mortgages)
• Approved issuer levy (for example on foreign mortgages)
• Income arising from the exercise of foreign employee share options
• Accrual income (from foreign financial arrangements)
• Income from foreign trusts
• Rental income derived offshore
• Foreign dividends
• Foreign interest
• Royalties derived offshore
• Income from employment performed overseas before coming to New Zealand, such as bonus payments
• Gains on sale of property derived offshore (held on revenue account)
• Offshore business income (that is not related to the performance of services).

When your tax exemption ends after four years (up to 49 months), you must declare all foreign income on your annual income tax return (IR3 for individuals).

These types of foreign income are not tax exempt in New Zealand:

• Employment income from overseas employment performed while living in New Zealand
• Business income relating to services performed offshore.

If you have any of these types of income, you must declare them on your annual income tax return (IR3 for individuals) from the date of your arrival in New Zealand.

To be eligible

• You must have become a tax resident in New Zealand on or after 1 April 2006, and
• You must not have been a New Zealand tax resident at any time in the past 10 years prior to your arrival date in New Zealand. Read more about tax residency
• This is a once in a lifetime exemption eg you can't extend your tax exemption or renew it after its expiry date
• You or your partner cannot receive Working for Families Tax Credits while being tax exempt from foreign income, but will have to determine which is better for your situation, for example:
  
  You and your partner have $1,000 worth of foreign interest per year, but are eligible for $5,000 per year Working for Families Tax Credits in New Zealand if you do not claim the exemption for foreign income. In this situation, it is in your family's best interest to waive the exemption and pay New Zealand tax on the foreign interest and receive Working for Families Tax Credits. You can inform us of your foreign income on your annual income tax return (IR3 for individuals).

Hope this helps...

Cheers,
Silver

[three to go]

Thanks everyone for your comments and suggestions.

I just phoned the IRD and they confirmed the following:

• The 4 year transitional tax exemption DOES apply to UK occupational pensions. They are classed as 'foreign investment fund income' and fall under FIF Rules.
  
• It does not matter whether the pension is paid into a UK or NZ bank account.

Cheers!