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QROPS in Australia

    Should you transfer your UK pension?

    Are you an expat living in Australia? Have you got a UK pension? Here are your options for the tax-efficient management of your pension.

    If your pension remains in the UK, you may have UK tax obligations. 

    You could do better if you transfer your pension funds out of the UK.

    Such a transfer into a Qualifying Recognised Overseas Pension Scheme (QROPS) requires qualified advice.

    Here's an overview of your options...but if you have specific questions, don't hesitate to contact us and we'll help.

    Leave in UK

    If you leave your pension in the UK

    From 6th April 2006, the rules for UK pension schemes including; retirement annuity contracts, small self-administered schemes, self-invested pension plans, personal pensions and occupational schemes; have been consolidated under ‘Registered Pension Schemes’. 

    These come under either Defined Benefit or Defined Contribution Schemes.

    UK tax

    Income Tax (UK) during the member’s lifetime

    More flexibility was offered to pension holders in April 2015 meaning that in most defined contribution cases, 25% of pension pots can be withdrawn tax free whilst the remainder (no matter drawdown, lump sum or annuity income) is taxed at the pension holder’s marginal rate of up to 45%.

    If income is sourced in the UK, as is the case with a UK pension, then even non-UK residents are liable to pay UK income tax on those earnings in the same way as UK residents. Your UK pension, counted as UK source income, will therefore be taxed at your marginal rate. Tax is applied to the 75% that is not included in your tax free sum.

    A Double Tax Agreement (DTA) between the country in which you are resident and the UK can mean that you are exempt from UK tax. If the DTA exists between the country in which your pension is held and the country in which you are resident, than you can choose, instead, not to pay tax where your pension is held in favour of being taxed where you are resident. International pension transfers is a potentially complex business and we would always recommend bespoke independent financial advice to expats considering this option.


    DTA between the UK and Australia

    The DTA between Australia and the UK stipulates that pensions held in the UK and paid out to residents of Australia are taxed in Australia, not in the UK.

    Death payment

    Pension Death Benefits Payment – UK Tax

    Legislation in April 2015 affects UK taxation on defined contribution scheme benefits. For instance, taxes on death benefits are now influenced by whether the pension scheme member passes away before or after reaching 75 years of age. Passing pensions onto beneficiaries after the death of the pension holder is now, in general, less costly. Tax rates are still up to 45% in some cases.

    Non-UK residents with a QROPS can, in some circumstances, pass on benefits at a lower tax rate when they die. Independent financial advice with a qualified pension specialist should be sought for individual cases.


    Gibraltar QROPS

    Gibraltar taxes of 2.5% apply to QROPS held in the jurisdiction as no DTA exists with Australia. UK income tax does not apply if the person has been non-resident for at least five years or withdrawals are below £100,000.

    Inheritance tax does not apply in Gibraltar and you are protected from UK inheritance tax.

    Gibraltar QROPS holders are protected from UK death benefit charges if the member is not, and has not been for at least 5 years previously, a UK resident.


    Malta QROPS

    Independent financial advice should be sought in all pension transfers to Malta. Australia and Malta do have a DTA in place which states that pensions will only be taxed in the individual’s country of residence (Australia). Therefore, the resident in Australia will pay tax on their Maltese pension in Australia, not in Malta.

    UK income tax does not apply if the person has been non-resident for at least five years or withdrawals are below £100,000.

    Inheritance tax does not apply in Malta and you are protected from UK inheritance tax.

    Malta QROPS holders are protected from UK death benefit charges if the member is not, and has not been for at least 5 years previously, a UK resident.

    Australia tax

    Tax in Australia

    What is a resident and what are they taxed?

    Whether the individual is a resident in Australia must be revisited annually. In general, Australian tax residents are taxed on their income no matter where in the world it is sourced. Australian income tax is progressive up to a maximum of 47%, however this is temporary ‘budget repair’ and the top rate of tax is normally 45%. The lower top rate should enter into force again in 2017 but there are no guarantees. For those earning over AUD 180,000 the temporary 2% is applicable to non-residents and residents. Residents must also pay health insurance with Medicare of 2% making the highest possible rate of tax a total of 49%.

    A resident of Australia either resides in Australia, is domiciled in Australia, has spent 183 days or more during the tax year in Australia or the individual is a member (or the spouse of a member) of specific superannuation schemes.

    Residents are subject to normal residency tests. Those domiciled must not have a ‘permanent place of abode’ outside of Australia. Those who fall into the 183 day category can claim not to be resident if they have a ‘permanent place of abode’ abroad and do not intend to claim residency. Commonwealth government superannuation schemes that subject the individual to taxes are normally held by diplomats or similar.

    Temporary residents are taxed on the worldwide employment income and investment income arising in Australia only. This generally applies at the marginal rate. Temporary tax residents are also temporary visa holders. They would not normally be classed as temporary visa holders if their spouse holds a permanent visa or citizenship. Australia taxes non-residents on their Australian-sourced income up to 45%.

    Your options

    QROPS pension options

    You have 4 main options: -

    1. Leave your pension in the UK
    2. Transfer to a Gibraltar QROPS
    3. Transfer to a Malta QROPS
    4. Transfer to an Australian QROPS

    1) Leave your pension in the UK:

    If the requirements of the DTA are satisfied, than no UK tax applies. If resident in Australia, tax is levied up to 45% with the addition of Medicare and the budget repair levy making 49%. The pension fund will be subject to UK death benefit charges.

    2) Transfer to a QROPS in Gibraltar

    For those members who have been non-UK residents for five years or more, transferring a pension to a Gibraltar QROPS will mean not being exposed to UK taxes on income of up to 45%. The member will pay 2.5% tax in Gibraltar and, if an Australian resident, up to 49% in Australia also (including Medicare and budget repair levies). An Australian tax credit applies to mitigate the Gibraltar tax. Non-residents or temporary residents will not pay Australian taxes. The QROPS protects from inheritance tax and (assuming 5 years as a non-resident in the UK) it will also protect from UK death benefit charges.

    3) Transfer to a QROPS in Malta

    Again, assuming the member has been a non-UK resident for five years or more, this option will ensure the pension is not subject to income tax (up to 45%) in the UK. The DTA with Australia means that, for Australian residents, no Malta tax applies as the tax is levied according to Australian tax law (up to 49%). If a non-resident or temporary resident, Australian taxes are not charged but Malta tax or up to 35% may be due. The QROPS protects from inheritance tax in the UK (also with a ‘0’ rate of inheritance tax in Malta) and assuming 5 years as a non-resident in the UK, it will also protect from UK death benefit charges.

    4) Transfer to an Australian QROPS
    Trustees of Australian QROPS are prevented from accepting more than the transfer limit of AUD 540,000 every three years. Using both a foreign QROPS and an Australian QROPS for those with larger UK pension pots may be beneficial. The growth component may be tax free if transferred within a 6 month timeframe of becoming an Australian resident (taxed at 15% if not). Expats who retire to Australia, in general, are not required to pay tax on the payments from their Australian QROPS. 


    We believe the above taxation information is accurate, however tax rates and rules can change, and we are NOT tax experts. Therefore, please do not rely exclusively on the information to determine your liability for tax.

    Speak to a local tax expert for personalised advice, or consult an international taxation consultancy.

    If you'd like our help with regard to your expat pension options, please get in touch and we will do all we can to help.

    Make smarter, safer decisions for your pensions.

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