The question for many expats is in Australia is if switching their UK pension to a Qualifying Recognised Overseas Pension Scheme (QROPS) is worthwhile?
Tax is a personal issue and no one-size-fits-all solution is available, but here are some general pointers to how pensions are taxed in different financial centres for British expats and foreign workers in Australia who have UK pension rights.
Pension tax in the UK
In April 2015, all pensions except the state pension were pulled together under the same tax rules.
If the workplace or private pension stays in the UK and benefits are drawn in Australia, then income tax at the retirement saver’s marginal rate is payable in Australia under the terms of a double taxation agreement between Britain and Australia.
The agreement stops anyone paying tax twice on the same income.
Pension in Australia
Payments from an Australian QROPS are generally tax free, providing they meet certain tests, but expats and foreign workers with UK pension rights need to talk to an Australian IFA to make sure they meet tax and residency rules.
QROPS in Malta
Malta also has a double taxation treaty with Australia and a thriving QROPS market.
Malta QROPS rules allow anyone living in Australia to leave their pension in Malta and draw the benefits from overseas. Because of the tax agreement, if any income tax is due, Australian tax rules determine how much is paid.
QROPS in Gibraltar
Gibraltar also has a thriving QROPS market which allows residents in other countries to base their pensions in Gibraltar.
Australia and Gibraltar do not have a double taxation treaty. Gibraltar charges a 2.5% tax on pension withdrawals and if any additional tax is due under Australian laws, the liability is calculated at the retirement saver’s marginal rate.
What’s the best QROPS for someone in Australia?
Unfortunately, there is no hard and fast rule that gives an answer. If you are a British expat or foreign worker with a UK pension living in Australia, you must speak to a qualified Australian IFA experienced in QROPS transfers.
The IFA will determine the best QROPS after reviewing your tax and residency status, investment profile and financial goals.
Under Australian financial regulation, consumers must take advice from a properly authorised IFA before making a pension transfer – talking to an IFA from outside the country will not do.