New Zealand Tax on NZ and UK Pensions

If you are receiving pension income from the UK or contributing to or receiving a New Zealand pension, you will need to know how your pension contributions and income are taxed in New Zealand.

You may also need to know how growth on your UK pension funds is taxed once you are resident in New Zealand. New Zealand has a double taxation treaty with the UK, so you will not be taxed twice on any income.

• Tax on New Zealand Personal Pensions
• Tax on New Zealand Superannuation
• Tax on KiwiSaver
• Tax on the UK State Retirement Pension
• Tax on UK Personal and Occupational Pensions

Tax on New Zealand Personal Pensions

Contributions to New Zealand pension funds:

Apart from the limited tax credit afforded by the KiwiSaver retirement savings scheme, contributions to pension funds in New Zealand are not tax free.

Growth on New Zealand pension funds:

NZ pension funds are taxed on the income produced (interest and dividends) and on some offshore capital gains. This is generally calculated and paid for you by the fund administrator.

Income from New Zealand pension funds:

Income and lump sums you take from New Zealand pension funds are regarded as "tax paid" - you will not be subject to any further New Zealand income tax charges.

Tax on New Zealand Superannuation

Income from NZ Superannuation (the NZ state retirement pension):

The New Zealand Government pays a pension to qualifying citizens and permanent residents from 65 years of age. This is regarded as part of your taxable income.

Tax on KiwiSaver

Contributions to KiwiSaver:

You pay income tax on the portion of your salary that you contribute to your KiwiSaver scheme.

Growth on KiwiSaver:

KiwiSaver funds are PIEs - Portfolio Investment Entities. PIEs are special investment funds that are especially tax-efficient for high-income earners. KiwiSaver funds are currently taxed at 19.5% or 30% on their investment earnings - the tax is calculated and paid by your KiwiSaver fund manager at a rate determined by your income. KiwiSaver funds are not taxed on capital gains.

Moves are afoot to align KiwiSaver tax rates with income tax rates, so from April 2010 you will be taxed at between 12.5% and 30% on the investment earnings in your KiwiSaver fund. This will benefit lower income earners, and higher income earners continue to benefit from paying 30% tax on their KiwiSaver rather than their income tax rate of 38%.

Income from KiwiSaver:

You can access your KiwiSaver once you have reached the qualifying age for NZ Superannuation, currently 65. Any income or lump sums you take from your KiwiSaver are regarded as "tax-paid" - you do not New Zealand income tax on them.

Tax on the UK State Retirement Pension

Income from the UK State Retirement Pension:

If you are not eligible for NZ Superannuation (or your UK State Retirement Pension exceeds NZ Superannuation and you choose to take this instead) you will receive your UK State Pension directly. It will form part of your taxable income in New Zealand and will need to be declared on your NZ tax return.

Tax on UK Pensions:

Income from UK Personal and Occupational Pensions:

You can receive lump sums from UK personal and occupational pension schemes without paying further tax on them, as they are currently regarded by the New Zealand IRD as a return of capital. But you will need to pay New Zealand income tax on income from your UK personal and occupational pension schemes while you are resident in New Zealand if you are no longer in the 4-year transitional resident tax exemption period.

Growth on UK Personal and Occupational Pensions:

UK personal and occupational pensions meet the NZ Inland Revenue Department QFPA (qualifying foreign private annuity) rules, so are not subject to FIF (foreign investment fund) tax - this means that as long as you cease to make contributions to your UK pension funds within four years of the start of the income year in which you become New Zealand tax resident, you are not subject to any New Zealand tax on the growth of your UK pension fund until you take benefits from it.

Consequently, there is no time limit where you have to transfer your UK pensions to avoid paying New Zealand tax on them. You can generally transfer UK personal and occupational pensions to New Zealand until you have purchased an annuity. The relevant legislation is available from the Inland Revenue website, www.ird.govt.nz. Search for IR 257: Overseas Private Pensions.

Contributions to UK Personal and Occupational Pensions:

You can even keep paying into your UK personal pensions once you are resident in New Zealand if you still have some UK income. This generally needs to be earned income rather than investment income. Under HMRC rules you only qualify for tax relief on pension contributions up to the ‘basic amount' of ₤3,600 (in the 2009/10 tax year), and you are only eligible for this relief for five tax years after you leave the UK.

Please fee free to contact us if you have any questions about your UK pensions, and don't forget to order your free copy of our comprehensive UK Pension Guide.