Pension Switch Expats Face Unexpected Tax Bills

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British expats in New Zealand could be hit by unexpected tax bills for switching their pensions from the UK.

Tax demands have gone out to expats following a New Zealand Inland Revenue review of pension transfer tax.

The tax is not new, but was miscalculated or overlooked by expats and financial advisers.

Pension transfers by expats to New Zealand are tax free, providing the fund is switched within four years of becoming resident.

If the transfer was made out of time, tax penalties are applied on a sliding tariff.

The problem for many expats is they do not have the money to pay the tax bills because they cannot meet hardship rules to withdraw the money from their pension.

Financial hardship

One British expat, Alison Gordon, transferred her pension and has picked up a tax bill of NZ$11,000.

The financial adviser who arranged the transfer did not have a tax consultant on the staff at the time and offered no tax advice for the fee they charged for arranging the pension switch.

Gordon fears she may lose her home over the bill because she is single and facing redundancy.

“If my job was secure I could probably raise some money from equity in my house, but without a job this is impossible,” she said.

“I don’t meet the hardship criteria for withdrawing money from a Kiwisaver and no one seems to want to take responsibility for not telling me about this liability.

Tax amnesty

“I’m not complaining about the tax that I need to pay because I understand why I have the bill. My complaint is that no one told me this tax was due so I could plan to pay.”

The Inland Revenue has offered to discuss payment terms with expats who face financial hardship over unpaid pension transfer tax.

Lawyers taking on cases for expats say some have bills of NZ$40,000 and have no access to money tied up in their pensions to pay.

Many British expats who transferred pensions between 2000 and 2014 were offered a one-off tax payment of 15% of the money switched from the UK.

However, that amnesty does not apply to anyone who claimed family tax credits or student loans in New Zealand.

Gordon had claimed family tax credits, which put her outside of the tax amnesty.

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