UK pension switch expats fall foul of NZ taxman

Published:  6 May at 6 PM
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Following a review of tax payable on pension transfers by New Zealand's Inland Revenue, expats who’ve switched their pensions out of the UK are getting unexpected tax demands.

According to the Kiwi tax authorities, the tax itself is not new but has been either overlooked or miscalculated by financial advisers and expats themselves. Basically, as long as pension transfers are made within four years of arrival in New Zealand, tax does not apply, but those transferring their pensions out of time must pay penalties calculated on a sliding scale.

This sounds straightforward, but the problem is that those billed for tax on their pension transfer cannot use withdrawals from their pension pots to pay the bill. To be able to use a withdrawal to cover tax liabilities, specific hardship rules must apply.

Alison Gordon, a Briton who transferred her pension outside the time limit is now facing a bill for NZ$11,000, money she does not have. Her financial adviser failed to consult with a tax specialist when he arranged her pension switch to a Kiwisaver and made no attempt to familiarise her with the rule, leaving her with little alternative but to sell her house to pay the bill.

Alison told reporters she does not meet the hardship criteria and had no knowledge of the tax law and how it applied to her. No-one, she added, seems to want to admit responsibility for the lack of information which has left her in financial difficulties.

New Zealand’s Inland Revenue is prepared to discuss payment terms with expats in a financial fix due to lack of information. Lawyers in the sector are stating cases of bills as high as NZ$40,000 with no means of being paid due to cash being tied up in transferred pensions.

A number of British expats whose pension transfers took place between 2000, and 2014 have been offered amnesties in the form of a one-off payment of 15 per cent on the amount transferred from the UK. The deal does not include those who have claimed New Zealand student loans or family tax credits. M/s Gordon had formerly claimed family tax credits, thus losing the amnesty option.
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