The long-promised review of New Zealand tax on offshore pensions proposes new rules that make QROPS tax matters for retired expats easier.
The problem for many British expats retiring to New Zealand is the two nations have opposite tax rules.
Broadly, Britain allows retirement savings to grow tax free and taxes pension payments, while New Zealand taxes retirement savings but does not tax pension benefits.
This has led to confusion in both countries as to what tax British expats should pay on their pensions.
Proposed tax changes
The new tax rules will apply to expats who have:
- Transferred or withdrawn against foreign pensions since January 1, 2000
- Filed tax returns declaring foreign investment fund (FIF) income or loss for an interest in a foreign superannuation scheme before May 20, 2013.
These expats include retirement savers with QROPS.
Taxpayers who have not transferred or withdrawn against a pension fund need do nothing.
The New Zealand government proposes retirement savers who have not declared their pension transfers or income should pay tax on 15% of the value of their transfer fund or pension payments. The balance will remain tax free and no penalties or interest will be applied for late declaration.
The outcome of the proposed new law is FIF rules will be abolished for foreign superannuation schemes.
Just how this will affect New Zealand QROPS remains unclear.
NZ QROPS market consolidation
Measures are already in place that exempt expats and other New Zealand residents from tax on pension transfers under certain circumstances.
The New Zealand QROPS market is also undergoing a major consolidation as smaller Kiwisaver schemes are swallowed or join with other schemes to form larger funds to benefit from economies of scale.
New Zealand has 48 QROPS funds – the same as Guernsey – and ranks sixth in the world as the largest provider of schemes.
“The idea behind the amnesty is to encourage taxpayers who are outside the system to jump back in,” said New Zealand tax lawyer Michael Reason. “No doubt the government hopes that tax revenues will improve in the long run if the system is made simpler and fairer for everyone.”
Lawyers and QROPS advisers suggest that non-compliance by retirement savers is that felt the system unwieldy and punitive.
Until QROPS tax rules in the UK changed in April 2012, New Zealand was a favourite QROPS destination for British expats and boasted more than 60 schemes.