Personal Pension  

HMRC rules out Australian pension tax exemption

HMRC rules out Australian pension tax exemption

HM Revenue and Customs has refused to give Australian superannuation funds an exemption under the UK qualifying overseas pension rules, despite pleading from an Australian trade body, and has started issuing letters to Australian schemes warning they are about to be taxed.

Under the pension age test brought in by the pension freedoms, schemes are required to assert savers are not able to access funds before the age of 55, except in cases of extreme ill health in line with UK law.

Failure to do so means transfers in are treated as unauthorised payments, and schemes will be hit with a retrospective 55 per cent tax charge.

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However, savers can access funds earlier under Australian law in a wider range of circumstances, such as financial hardship.

In June, the Law Council of Australia wrote to HMRC to confirm that Australian rules that apply to superannuation funds are consistent with the new rules.

The committee asked HMRC to confirm under what circumstances a UK pension transfer amount can be paid to a member prior to 55 years of age.

However, a letter sent to an Australian scheme and seen by FTAdviser, has ruled out all hopes of an exemption, stating HMRC’s view is that the scheme cannot meet the pension age test introduced on 6 April.

The letter states: “From the date your scheme ceased to meet the requirements to be a Rops, any transfer from a registered pension scheme to this scheme will be an unauthorised payment and table accordingly.

“Any transfer to this scheme from an overseas pension scheme that has received UK tax relief, or/and whose funds were derived from a recognised transfer from a registered pension scheme, may be taxed as an unauthorised payment under the member payment provisions of Schedule 34 to the Finance Act 2004.”

A spokesperson for HMRC said: “We have a duty to apply the tax legislation fairly and consistently to everyone. There are a number of reasons why a scheme may no longer meet the requirements to be a Rops.”

Geraint Davies, founder and managing director of overseas pension adviser Montfort International said: “It is very clear that Australian [schemes] have not paid attention to UK rules - they have not realised their responsibilities.

“Australians don’t want to expose themselves to HMRC. Everyone’s saying this is not a problem, it’ll get sorted out, but this is a long way from being sorted out.”

Concerns were first raised over the compliance definition of Australian pension schemes after a letter was sent by HMRC backdating new regulations brought in following pension access reforms April this year.

The letter, which was seen by FTAdviser, was sent to overseas schemes and backdated regulations to 6 April.

Rules for qualifying recognised overseas schemes, or Qrops, were changed to ensure access rules were in line with those brought in in April under retirement freedoms.

The letter also asked for specifications that either the country’s law prohibits access before the age of 55 or that the scheme rules have been amended to ensure they do not allow funds to be withdrawn before members reach this age unless due to severe ill health, in line with laws in the UK.