UK Tax on Australian Superannuation

An Australian tax resident of many years may soon to become a UK tax resident. He has accumulated an investment in regulated Australian Superannuation for his retirement funding. This was created from savings, i.e. from income which was already taxed. In Australia he is allowed lump sum withdrawals up to the whole balance. No pension income stream is in payment. The Superannuation Fund is taxed by Australian Taxation Office on the fund growth. What tax liability, if any, would arise upon assuming UK tax residency regarding the investment capital value? What tax would arise upon making lump sum withdrawals as a UK tax resident bearing in mind this is from his own after-tax savings? What tax would arise on the annual growth in the capital value if the investment?

Hi, 
Where  a lump sum payment is taken out this would be taxable only in Australia. 
If a pension was taken instead and monthly amounts paid, this would then be taxable only in the UK as a UK resident.

Hi HMRC Admin 3, Thank you for your rapid response, which I have been carefully considering.  I would appreciate the opportunity to explore this scenario a little more deeply. Firstly could I offer some background re Australian Superannuation.  This is regulated by Australian Taxation Office (ATO) and is managed around legislated rules designed to encourage individuals to save for their retirement, thus lifting pressure from the State Pension.  Contributions can take a number of different forms.  These include workers statutory contributions paid by employers and employees, which are taxed on the way in.  There are also voluntary contributions an individual can make from his own after-tax income, to build the fund value, which are not taxed again on the way in.  All contributions are subject to strict limitations.    Withdrawals are also carefully regulated.  However once a person reaches legislated pensionable age and conditions, funds can be withdrawn in one or more payments, income tax free, and of any value up to the entire fund balance.  This can be in irregular lump sums from the Accumulation account with no minimum annual withdrawal. However typically the Accumulation account would be converted into a Pension account and a regular pension paid out subject to a minimum annual %, while additional drawings can be made at any time of any amount remaining in the fund. The Superannuation Fund (not the individual) is taxed on the growth in the Accumulation phase by ATO.  Hence both contributions and growth have been taxed prior to commencing a pension.  Once the Pension phase begins there is no further tax on the fund growth or on eligible pensions, so no tax on the way out. Therefore a pensioner moving to UK and assuming UK tax residence would be concerned to find his superannuation pension may become taxable by HMRC.  It may be equitable to tax the fund growth, but should a beneficiary need to make a capital sum withdrawal (e.g. for medical costs, or by depleting the fund over time) he would find his own after-tax savings being taxed a second time by HMRC.  This would be double taxation by ATO and HMRC jointly and not relieved by the Double Taxation Agreement as far as I can see. My initial question however related to a person whose superannuation account is in the Accumulation phase and not the Pension phase.  Hence this fund has its growth taxed by ATO but the beneficiary of pensionable age can withdraw capital sums as required of any amount up to the fund balance at any time.  Your initial response stated "where a lump sum payment is taken out this would be taxable only in Australia".  It concerns me that the singular "Lump Sum" withdrawal used in a UK pension context is quite different from multiple irregular lump sum withdrawals from Superannuation. It seems to me that Australian Superannuation in the Accumulation phase is similar to a bank savings account where growth is taxed but capital (which has already been taxed before investment) can be withdrawn without further tax liability.  This is supported by your initial response. Given the special rules which surround UK Pensions and Australian Superannuation, and their differences in approach, I am concerned that any individual who moves to UK may in fact fall into a tax trap from which there is no possible extrication.  If HMRC should in fact apply tax to multiple lump sum withdrawals from the Superannuation Accumulation fund which existed at commencement of UK Tax residence, the individual cannot correct that situation.  Ideally I would like to obtain a binding ruling (such as the ATO can supply) but I am not aware of a facility from HMRC.  Is there one? If you remain sure of your original response having considered this further detail, please could you advise me which rulings and legislation I should refer to for verification.  If your initial response needs to be clarified in any respect I look forward to hearing back from you.  Thank you for your time and consideration.. 

Hi, The intitial response would still be correct in terms of a pension withdrawal as per the tax treaty the UK has with Australia. If this income is treated as a pension within the UK then the pension treaty agreements would apply. If you believe this to be more of a savings account then the savings rules would apply and it would be the interest that we would be looking at. You may wish to seek independant financial advice regarding this. Australia: tax treaties

Hi HMRC Admin 4, A UK citizen and has returned to the UK after their role was no longer required in Australia. They had no other option but to claim DASP otherwise the super fund would transfer the super money to the ATO as unclaimed super money. They therefore had to recover super funds back to the UK. The ATO withheld 35% tax on the fund and the UK citizen received a net payment. The UK citizen was a part year temporary tax resident in Australia. How should this super money be treated on the UK Tax Return for 20/21. Should this DASP payment be treated as a return of premiums paid and not declared, or as an overseas ‘lump sum’ pension payment with a 35% tax deduction at source. Many thanks.

Hello Nigel,

This would be declared as an overseas lump sum pension payment and foreign tax credit can be claimed on the amount of tax already paid. Regards,

Very helpful and clear. Many thanks HRMC Admin 8.

Does the UK remittance basis of taxation apply to investment returns (e.g. dividends, interest, rent and capital gains) from superannuation; as well as to withdrawals (e.g. as an income stream (pension) or lump sum)?

Hi,

Yes, it will apply to any income that is subject to tax in the UK. 

Thank you.

My mother lives in the UK and is a dual Australian British National. She is in receipt of an Australian Government Public Service pension and a revisionary public service pension from my father. Can you confirm that under the double taxation agreement article 17 her Australian pensions should only be taxed in Australia?

Hi, If your mother is resident in the UK, the DTA with Australia at article 17 states that the pensions should be taxable in the country of residence. Your mother should be paying tax on these in the UK. If she is not already doing so she needs to be registered for Self Assessment and file a tax return each year. She would also need to get in touch with the Australian authorities to find out how to stop paying tax there. Thank you.

Dear Forum, I worked for 6 months in Australia during the 2019/20 tax year, and my employer paid super contributions into a superanuation fund on my behalf. I remained a UK tax resident during this time. I claimed the DASP this summer (in the 2020/21 tax year), and I assume I declare this lump sum payment next year (on my 2020/21 self assessment). However, I am unsure how to declare the original payments (i.e. the money paid weekly into the super fund by my employer, and taxed in Aus at source). I have not currently included these in the employment income section of the self assessment - where I have declared the actual money I was paid - and guess that the super payments should be declared in the pension section. However, to me the pension section is ambiguous, as it is not clear whether it is asking for employer contributions (i.e. what my employer paid directly into the fund) or actual pensions payments (i.e. what the fund would eventually pay a retired person). Any help would be appreciated. Kind regards,

Hi, If you are not due to get further tax relief on the contributions made, you do not need to declare these anywhere on the return.

I have lived and worked in Australia for the last 13 years and intend to stay another 6, I will then be 65 and plan to retire back in the uk. I rent in Australia but I am planning on withdrawing half of my superannuation as a lump sum (tax free) and buying a small property in the uk, I was then hoping to take the rest as a monthly income but it looks like from previous comments that although this will be tax free in Australia, I will need to pay tax on it in the uk. Is there a better way to manage this?

Hello VALPICK1. You are correct in stating that if you are resident in the UK and receive a monthly pension from Australia this will become reportable and liable to tax under the UK rules and not in Australia.  We cannot give you financial planning on a different option for you.  Thank You.

I asked a question earlier in relation to Australian superannuation and the remittance basis of taxation. Admin 2 provided a very clear answer. As a follow up: - if I am taxed in the UK using the remittance basis; - my Australian superannuation makes a positive investment return; - I make withdrawals (as an income stream (pension) or lump sum) from my Australian superannuation; - but I do not remit anything from my Australian superannuation to the UK. Will my Australian superannuation be subject to any tax in the UK? Even if it is not taxed in the UK, will my Australian superannuation have any impact on UK taxation of other income that is taxed in the UK? Best Regards

Hello. You can find out more information regarding the remittance basis in our helpsheet here Remittance basis 2020 (HS264) If you’re taxable on the remittance basis, you’re liable to UK tax in the normal way on your UK source income and gains. But you’re only liable to UK tax on any remittances (amounts) of foreign income and gains that you remit to the UK (see below for what we mean by ‘remitted to the UK’). If you choose to be taxed on the remittance basis you must include these remittances on your tax return.  You should also be aware of the new rules on deemed domicile as this may make a difference to your situation either now or in the future - Deemed Domicile rules Thank You.

I have a client who worked in Australia for a number of years and returned in 2009. He is now looking to retire and wants to draw on his superannuation. I understand from previous responses that if he draws a regular income, this will be taxed in the UK. If he was to draw the whole pot as a lump sum, am I right in saying that this would be taxed in Aus? But then won't be subject to UK tax when it's brought back to the UK? Additionally, is he able to have the income paid to a UK bank account or does this need to be paid to an Australian bank account? Presumably if he continues to work and has the relevant earnings, he can draw the Australian pension and recycle the payments into a UK pension to reclaim the tax relief? Thanks

Hi,
 

Regular pension payments from an Australian fund would be subject to UK income tax only.  Lump sum payments would be subject to UK tax but also possibly Australian tax. In this case the UK will give Foreign Tax Credit Relief for tax already paid so tax is not paid twice on the same income. Guidance on pension contributions can be found here: Pensions Tax Manual . Thank you.

I am an Australian citizen in UK on a spousal visa. I withdrew superannuation for medical reasons and as I am under retirement age I was taxed at 20% in Australia. Can you confirm if I need to report this lump sum in my SA and if so as income or pensions as I am finding the pension section quite vague when it comes to a situation like this. In addition, I withdrew a small amount of Superannuation as part of the Covid scheme in Australia, does this need to be reported ? Thank you in advance