UK Tax on Australian Superannuation

I am a dual Australian / British citizen and resident in the UK for tax purposes. My father, an Australian resident, died and I am due to receive a lump sum death benefit payment as a non-financial dependant from his Australian super fund. I want to know whether any tax is payable in the UK on this sum. I believe that the sum is not taxable in the UK by reason of Article 17 of the Australian/UK Double Taxation Treaty - it treats 'income' and 'lump sums' differently - but I would like this confirmed. If the death benefit lump sum was paid into my father's estate and then out to me this question would be avoided but the trustees of the super fund will not do this and insist on making the payments direct to the beneficiaries. Thank you.

Hi Neil,

Please see guidance here on UK residency rules:

RDR3 Statutory Residence Test

Thankyou.

Regards.

I note from previous posts that if resident in the UK, Australian Superannuation regular income is taxed in the UK, whereas bulk withdrawals are not. What is the definition of a bulk withdrawal - is it the fund in it's entirety / a % of the fund? Are there limitations to the number of bulk withdrawals form the UK taxation perspective?

Hi there,

If benefits are not in payment i.e. you are not in receipt of a monthly, weekly or an annual pension then you should have the option to take 25% of the pension tax free.
The remainder of the pension will be taxable and added to the rest of any taxable income in the tax year to determine any tax liability. This is what's called a Trivial Commutation Lump Sum.
If the pensions are in payment and you decide to take a lump sum pension then this is the taxable amount. If you refer to your paperwork from the Pension company in Australia, they should be able to tell you if the withdrawal is classed as a lump sum or not.

Thank you.

Hi! I am afraid I am still a little confused as to the answer to a question posted here about a year ago: "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 would arise upon making lump sum withdrawals as a UK tax resident bearing in mind this is from his own after-tax savings?" The answer given was: "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." The answer is clear as it relates to 'a lump sum payment'; however you are allowed to withdraw any number of 'lump sum' payments without incurring tax (for the reasons given above). Does your answer apply to multiple withdrawals of 'lump sums' as well as a single 'lump sum'? Thank you for your helpful answers.

Hi rajibear1960,

Guidance on Australian double taxation agreements can be found here:

Double Taxation Relief Manual

However clarification is currently being sought for a definition of a lump sum. 

Thank you.

I am curious to know the difference between the UK "ISA" private pension scheme, where the income stream/pension is able to be taken tax free, and the Australian superannuation income streams. On my brief reading of them they appear to be close to identical in nature yet treated differently. So I'm baffled about why the Australian pension (for retirees over 65) is taxed but the ISA pension isn't. could someone explain the reasoning behind this? thanks RB

Hi Curious 1

If you are in receipt of a private pension this is usually taxable in UK.

See link below for more information about tax on pensions:

Tax when you get a pension

Thankyou.

Regards.

Is is not possible for you to give actual answers on here rather than quoting references to the website which is totally confusing when trying to apply to the question posed?

re the difference between an ISA and an Australian Superannuation income stream: My question was about why one appears to have an income stream which is not taxed (ISA) and one which appears to be identical in nature and concept and is taxed by the UK revenue service. I realise that some "private pensions" are taxed, with a 25% tax free amount (I think), yet an ISA isn't taxed due to the nature of the fund and the way payments are made into it. As an Australian fund is more like an ISA fund than what I understand a UK "private pension" fund is, I'm wondering about the rationale behind treating the Australian funds as a "private pension fund" rather than an "ISA" fund. Thanks

Hi,
 

Income from an Australian superannuation fund is likely to be an overseas pension and taxable in the UK.  You may need to contact your Australian superannuation fund provider if you wish more details in how the fund operates.    UK ISA are not pensions they are Individual Savings accounts made up of 4 types ISAs, see link below for more information : Individual Savings Accounts (ISAs)    . Thank you.

Could we please do some worked examples to this forum ? 1. Fred is resident in the UK and has $500,000 in an Australian superannuation fund in accumulation phase. The fund makes $50,000 pays 15% tax in Australia and the fund grows to $542,500 during the UK tax year and Fred does not take any money out. Does Fred have to pay HMRC tax on the $42,500 ? Thanks Bill

2nd example please Doris has $500,000 in pension phase in an Australian Super fund, the fund has an extraordinary year and makes 20% after all taxes/franking credits and fees etc are taken into account. The fund rises to $600,000 Doris takes a pension of $50,000 what does the HMRC expect her to pay tax on ? $50,000 or $100,000 ?

3rd example please Fred has the equivalent of 250,000 Pounds in Australian superannuation. The fund makes no profit and no loss during the tax year but $AUS rises by 10% with respect to the UK Pound so the funds value in UK pounds is now 275,000 Pounds. Does Fred have to pay tax on the apparent profit of 25,000 pounds ?

Example please Doris has $400,000 in a superannuation account in pension phase she makes a lump sump withdrawal of $99,000 in the 2020 tax year this is less than 25% and is tax free. She also takes her usual pension of $25,000 leaving $276,000 in the fund. The $25,000 is less than the personal allowance of 12,750 pounds so she pays no tax Can Doris make a cash withdrawal of 25% again in the 2021 tax year ie $69,000

Example please Jim and Jane empty their superannuation accounts and sell their house before they leave Australia and hold the money as cash in a bank account. They have $1,000,000 in that account and transfer it to the UK prior to moving to UK permanently. They buy a house and a buspass and live happily ever after. Does HMRC have any right to ask for any tax on the transferred funds ?

Hi Bill

We cannot give financial planning on this Forum,  you could speak to the Pension Provider who may advise of Pension withdrawal rules.

Thankyou.

Regards.

Hi Bill

If your question is regarding  transferring capital from an individuals  bank account  to another account  there is no income tax charge.  

Thankyou.

Regards.

Hi Bill

As these are hypothetical quesions can you please refer to  www.Gov.uk for information, although  I can advised as a UK resident you are entitled to report your worldwide income to HMRC and are due to pay tax in the UK.

Tax on foreign income 

Thankyou.

Regards.
 

Admin 17 I think you are missing the point made by Curious1 in that Pension funds in Australia are made up of after tax income whereas in UK contributions are tax excempt, this would be where the similarity to ISA's comes from. It does seem unfair that Pension payments received from an Australian fund are taxed to a UK resident , when tax has already been paid on the contributions in Australia, doubling tax. For example If I received £10000 wages in Australia and paid £2000 tax on that, contributed the remaining £8000 to a pension fund, and then later in life received a pension payment from that fund I would have to pay a further 20% on that payment so in theory receive just £6400, making a total of £3600 tax paid on my original £10000, which is just unfair!