tmmonline.nz  |   landlords.co.nz        About Good Returns  |  Advertise  |  Contact Us  |  Terms & Conditions  |  RSS Feeds

NZ's Financial Adviser News Centre

GR Logo
Last Article Uploaded: Friday, May 20th, 6:17PM

News

rss
Latest Headlines

People should be angrier about tax changes: Baucher

Migrants who have transferred British pensions into KiwiSaver funds are facing tax bills that run into tens of thousands of dollars but cannot access their super funds to pay them.

Friday, March 4th 2016, 6:00AM 6 Comments

by Susan Edmunds

IRD is sending letters to taxpayers it suspects withdrew or transferred money from a foreign pension fund between 2000 and March 31, 2014, without paying adequate tax.

The person is then usually asked to include 15% of the lump sum in their tax return for the 2014 or 2015 year.

Since 2014, pension transfers have been taxable on a sliding scale. The longer someone is resident in New Zealand before they transfer their account, the more tax they pay. Within their first four years in the country, the transfer is tax-free.

But the tax exemption is removed if they apply for Working for Families, or take out a student loan.

Industry practitioners said the potential problem of how tax liabilities would be met was pointed out when tax changes were first mooted.

But IRD had indicated that people who transferred pensions could get around it because KiwiSaver schemes, which at that point had QROPS status, allowed people to withdraw money to meet their tax liabilities.

But last year all the country’s KiwiSaver schemes lost their QROPS status and can no longer accept British pension transfers without a hefty penalty charge of 55%. Those with money already transferred into the scheme cannot withdraw it for their tax bills.

From December this year, Financial Markets Conduct Act rule changes also reduce the amount that people can withdraw at age 55 from a non-KiwiSaver scheme that still has QROPS status to 10 per cent of their total balance.

Tax specialist Terry Baucher said: “It is a disgrace. The issues I have are many on this. It has a terribly compounding effect. More people are coming out of the woodwork because pressure is being applied.”

He said he had dealt with half a dozen cases of people struggling, one who owed more than $40,000 and did not have access to funds to pay it.

“People should be a lot angrier about this.”

He said tens of thousands of people could be affected and billions of dollars had been transferred.

Those who cannot pay the tax bill upfront can make an arrangement with the IRD to pay it off but pay a use of money interest charge of 9.21 per cent.

Alun Rees-Williams, of Britannia, said his firm had met with IRD to discuss possible solutions. That could mean turning the tax obligation in to a PIE tax or administrative charge that could be paid directly from the scheme.

Luke McKenzie, of MoveMyPension, said people who moved a pension now understood what was involved and would try to find other funds to cover the tax cost.

“Most people are warned before they transfer that they have some liability so they are prepared for it.”

Tags: QROPS

« Good time for financial planning: MayeLVR restrictions to be reviewed »

Special Offers

Comments from our readers

On 4 March 2016 at 9:21 am John Milner said:
I find it somewhat difficult to have simpathy with many of those who opted for the free option to transfer their UK funds.

The writing was on the wall for some time that KiwiSaver was in doubt as a credible long term solution, given the disparity between its withdrawal options and UK legislation.

Those that took the free option are now going to pay on the other side of the ledger. They didn't pay for quality advice and didn't get it. Good luck with that.
On 8 March 2016 at 1:20 pm Richard Harden said:
Unfortunately transfers to KiwiSaver were always frought with danger, might have been OK for the IRD to allow withdrawals to cover the tax liabilities but that was always going to break QROPS rules for younger people and clients should have been aware of this or got the correct advice. However in some circumstances KiwiSaver transfers have been a great vehicle as clients have know been able to access all their funds and are no longer locked into QROPs rules, very useful. The ever changing world of pension transfers continues and no doubt we will see more changes to the rules going forward. I think the retro tax of 15% on previous transfers is far worse and who can plan for that, I've just paid my bill from 2002, great!!!
On 8 March 2016 at 5:16 pm marjhutch said:
Maybe people did get so-called 'quality advice' and like myself still got hit with a hefty tax bill
On 9 March 2016 at 2:47 pm Richard Harden said:
Hi marjhutch, unfortunately this seems to be the case in some circumstances and highlighted by a call this morning from an accountant, his client transferred in 2015 but NZ resident since 2001 so facing hefty tax bill and even worse as under 55 so can't access funds to pay liability. Unfortunately pension transfers still being sold to some on tax advantages etc but please make sure clients get independent tax advice before proceeding!!!
On 12 March 2016 at 10:20 am Denis said:
This is a bit like buying a new car from your local Toyota dealer only to find that it explodes on the motorway. How would you react if the dealer said "More people should be angry about this.. " but carried on selling exploding Toyotas?

Yes, people should be angry. Over the years, I have noticed commentary from local "experts" saying, among other things, that UK public sector schemes are in trouble post GFC and it's safer to get the money away to a NZ individual scheme.

Anyone with any exposure at all to UK pensions will know just how questionable it is to recommend transfers away from UK public sector schemes. UK advisers don't do it.

An expert in the field would be fully aware that it was always likely that the HMRC and the IRD were going to act at some point.

NZ-based transfer organisations openly promote the "unlocking" of UK pensions. There is no serious effort made to assess whether it's a good deal and there will no-doubt be some weasely small words absolving the NZ adviser from responsibility.

Stuff that. My message to those who transferred public sector pensions away and are now facing a tax bill - is to "get angry" with the people who arranged it and made money from your UK pension transfer.
On 21 March 2016 at 10:22 am Sylvia said:
Some of us paid a hefty 5% of the total fund to transfer our UK pension to NZ for ‘quality advice’ from a well-known NZ UK Pension Transfer company in 2000. Only to be informed late last year that a retrospective Law change in 2014 now means another hefty payment. Further advice, that we seek clarification from a Tax consultant (more expense) because the AFA professional adviser said he was not authorised to give that advice!

Sign In to add your comment

 

print

Printable version  

print

Email to a friend
News Bites
Latest Comments
Subscribe Now

Weekly Wrap

Previous News
Most Commented On
Mortgage Rates Table

Full Rates Table | Compare Rates

Lender Flt 1yr 2yr 3yr
AIA 5.35 4.49 5.25 5.55
ANZ 5.54 5.15 5.85 6.15
ANZ Blueprint to Build 2.78 - - -
ANZ Special - 4.55 5.25 5.55
ASB Bank 5.35 4.49 5.25 5.55
Avanti Finance 5.45 - - -
Basecorp Finance 6.45 - - -
Bluestone 5.29 7.49 7.59 -
BNZ - Classic - 4.55 5.25 5.45
BNZ - Mortgage One 5.55 - - -
BNZ - Rapid Repay 5.55 - - -
Lender Flt 1yr 2yr 3yr
BNZ - Std, FlyBuys 5.55 5.35 5.94 5.99
BNZ - TotalMoney 5.55 - - -
CFML Loans ▲6.45 - - -
China Construction Bank 5.50 5.40 6.14 6.40
China Construction Bank Special - 4.45 5.19 5.45
Credit Union Auckland 5.95 - - -
First Credit Union Special 5.85 4.70 5.20 -
Heartland Bank - Online 4.00 3.85 4.70 4.84
Heretaunga Building Society 5.95 4.80 5.50 -
HSBC Premier 5.49 4.39 5.15 5.39
HSBC Premier LVR > 80% - - - -
Lender Flt 1yr 2yr 3yr
HSBC Special - - - -
ICBC 5.25 ▲4.29 ▲5.09 ▲5.35
Kainga Ora 5.43 4.57 5.58 5.85
Kainga Ora - First Home Buyer Special - 2.25 - -
Kiwibank 5.00 5.55 6.19 6.39
Kiwibank - Offset 5.00 - - -
Kiwibank Special 5.00 4.55 5.19 5.39
Liberty 4.84 - - -
Nelson Building Society 5.95 4.95 5.85 -
Pepper Essential 3.44 - - -
Resimac 4.59 5.60 6.16 6.29
Lender Flt 1yr 2yr 3yr
SBS Bank 5.29 4.69 5.35 5.49
SBS Bank Special - 4.19 4.85 4.99
Select Home Loans 4.09 4.29 4.86 5.09
The Co-operative Bank - First Home Special - ▲4.19 - -
The Co-operative Bank - Owner Occ 5.45 ▲4.29 5.19 5.45
The Co-operative Bank - Standard 5.45 ▲4.79 5.69 5.95
TSB Bank 5.59 ▼5.14 ▼5.79 6.15
TSB Special 4.79 ▼4.34 ▼4.99 5.35
Unity 5.65 4.80 5.50 -
Wairarapa Building Society 5.24 4.55 5.20 -
Westpac 5.54 5.09 5.79 6.09
Lender Flt 1yr 2yr 3yr
Westpac - Offset 5.54 - - -
Westpac Special - 4.49 5.19 5.49
Median 5.45 4.55 5.25 5.52

Last updated: 19 May 2022 10:42am

About Us  |  Advertise  |  Contact Us  |  Terms & Conditions  |  Privacy Policy  |  RSS Feeds  |  Letters  |  Archive  |  Toolbox  |  Disclaimer
 
Site by Web Developer and eyelovedesign.com