UK Tax on Australian Superannuation

Hi Tigercrab
As it is a lump sum pension payment, the income will be liable to UK tax.
Please refer to Article 17 of the tax treaty:
Australia: tax treaties
Thankyou.

Hi Tigercrab, This is another shocking example of unfair taxation rules around this subject creating double taxation of income. I am not a financial adviser so please do your own research and/or get proper advice, but I wonder if your friend could return to Australia very soon for a short stay and cash his superannuation while there. Then declare his UK residency begins when he returns to the UK . That would mean his UK stay since March could just have been a holiday. As long as he is deemed resident in Australia when he cashes in his Super, HMRC should not be interested in his income outside the UK. Check the residency rules as they apply in your case. Best of Luck to you. Perhaps our friends at HMRC might indicate if this idea is legitimate. Thank you HMRC Admin folks.

Thanks HMRC Admin 10. Having done further research into the DTA etc, I need to give you more information. My friends are a married couple: John and Janet. Both are dual UK/Aus nationals. They are downsizing from their previous large house and are hoping to be able to have permanent family homes in both Australia and the UK. They have lived and worked in Australia for the last 23 years. John's global income (mostly his salary from work in Australia) has been taxed only in Australia as per the DTA. For the last 23 years they have only holidayed in the UK on 3 brief occasions. John ceased full time work in Australia in early March 23 at the same time as they sold the large home that they both owned. Janet has already purchased the permanent family home in Australia which they both occupied before John left for the UK at the end of March 23. John is in the UK primarily for a holiday but also to begin exploring the feasibility of acquiring the UK permanent family home. John is presently only in the UK on a temporary/holiday basis for 3 months and will return to the permanent family home in Australia before the end of June 23. John contends that he is tax resident only in Australia for the Australian tax year ending Jun 23. Under the terms of the UK/Aus DTA (Article 4 para 3a) John is deemed resident only in Australia since Australia is the only State in which he has a permanent home. This is reinforced by the tiebreaker terms of INTM154020 (Double taxation agreements: residence: Dual residents). John is planning to return to the UK in July 23. If he does so, this will be to focus on searching for the UK permanent family home. Looking ahead and assuming he buys a permanent family home in the UK (not before Oct 23 at the earliest), John is likely to spend the bulk of his future time in the UK but will periodically return to the family home in Australia. Janet is likely to spend the bulk of her time in Australia but will periodically spend time in the family home in the UK. Janet and John will remain married. If and when John buys a permanent family home in the UK and spends the bulk of his time there, John's "centre of vital interests" will shift to the UK and (as per DTA Article 4 para 3a) he will be deemed UK resident for tax. Since under the terms of the DTA John will be resident for tax only in Australia up to the end of the Australian tax year on 30 Jun 23 and will be in Australia at that time, John contends that he can withdraw all monies from his Australian superannuation and close that account before the end of Jun 23 and be liable for tax on that superannuation only in Australia. Grateful for HMRC comment.

Having closed his superannuation account before the end of Jun 23 (the end of the Australian tax year), John will submit his tax return to the Australian Taxation Office covering his global income for the year up to 30 Jun 2023. This procedure will be as he has done every year for the last 23 years. This year he will additionally obtain from the ATO a "Certificate of Residency" asserting that he was Australian resident for tax purposes up to 30 Jun 2023.

My wife and I are dual citizens of Austrlaia and UK but now residing in UK. I have been perplexed by taxation relating to a small pension from employment in Australia. I have been declaring all my pension payments in GBP using mid market exchange rates on my UK tax returns even though that money has never left Australia. We also similarly declare to HMRC, the tiny amount of interest paid on our bank account. From reading these pages, I now see that even though there was nothing to prevent me remitting funds to UK I have not "actually remitted" the money to UK and should not have paid UK tax on it. Added to this the ATO continue to deduct witholding tax at a rate of just under 10% (I am not sure how to stop that). Is there any way I can recover tax paid on wrongly declared (notional) income? My wife and I use our Australian bank account while in Australia to fund our Australian holiday expenses wherever possible. However, I am becoming more elderly and poorer by the year and may not be able to travel to Australia at some time in the coming few years. At that time I will have to decide what to do with any accumulated money remaining in Australia. I can see that all funds in our Australian bank account have had UK tax deducted due to my treating it as having been "remitted" so I would have no taxable income when I do eventually move money to UK. Also, some money in Australia was transferred there from our taxed UK income and savings in UK in anticipation of a long 'grey nomad style' holiday, which sadly did not happen as planned. What ever about tax already overpaid I don't want to be challenged sometime in the future over remitting money from Australia which has already had UK taxation applied. I am afraid that HMRC issued guidance on remitance and double taxation is not easy reading due to relatively obscure technical constructs used by the authors.

From Art 4 Para 3a of the UK/AUS DTA an individual who is resident of both UK and AUS but who has returned to AUS and no longer has a permanent home available in the UK shall be deemed resident only of AUS. When back in AUS that individual, if above a certain age, can access his Super on terms pertaining to super funds in Australia. Lump sum drawdown is standard practice with AUS superannuation funds in the so-called Pension or Income phase. It is an inherent component of "pension" as understood in Australia. So an Australian reading of Article 17 para 1 would be that any means of accessing your Super (ie Pension) would be allowable. Under what authority therefore do HMRC (eg via this forum and the Digest of Double Taxation Treaties) say that lump sum withdrawals are not allowed. The text of Article 17 is silent on lump sumps. The DTA therefore cannot be used as the authority to disallow lumps sum drawdowns: quite the contrary. If, under an authority not included in the text of the DTA, lump sums are disallowed, then lump sums become "an item of income not dealt with in the foregoing Articles" - ie the lump sum is in scope for Article 20 titled "Other Income" which specifically states "wherever arising". In geographical terms, "wherever arising" includes the UK and AUS. Under what authority therefore. for it is not in the text of the DTA, does the Digest state "applies only to income from third countries"? The ultimate authority is the DTA. Unless the text of the DTA specifically limits or modifies an interpretation - particularly one that is commonplace in one of the Contracting States - then under what authority does the other Contracting State impose a limitation? I would be grateful for comment on this and my earlier posts.

Hi Tigercrab,

As this is hypothetical and based on future events, HMRC are unable to comment as legislation could change, as could individuals plans.

Thank you. 

Hi BrenOzUK Webster,

On the basis of the information provided, you have correctly been declaring your Australian superannuation pension and Australian bank interest in your Self Assessment Tax returns. You can claim Foreign Tax Credit relief on any Australian withholding tax deducted from your Australian pension.

There are no Income Tax implications re: the transfer of monies from an Australian bank account to a UK bank account (unless interest arises) so you would not have to report any such transaction to HMRC.                                                            

Tax on foreign income                                        

Relief for Foreign Tax Paid 2021 (HS263)

Thank you.

Thank you HMRC Admin 19 With respect, my last post seeks advice on existing legislation rather than hypothetical future events. Also this forum is full of hypothetical questions, and HMRC responses help people plan their future actions in a complex area. Is that not a key reason for the forum? May I ask, to any HMRC officer, three questions that seek clarity on HMRC's interpretation of the UK/AUS DTA? Is it correct that use of Art 4 para 3a of the AUS/UK DTA to establish AUS sole residency on the basis of one permanent home would be deemed by HMRC out of scope use of the DTA in the instance of lump sum drawdowns from a pension fund because lump sum drawdowns from pension funds are, in HMRC's opinion, not allowed under Art 17? What is the authority for HMRC to deem lump sum drawdowns from a pension fund out of scope since the text of the DTA is silent on lump sum drawdowns - ie the DTA does not say they are not allowed? Similarly, a literal reading of the text of Art 20 para 1 is that "wherever arising" includes the UK and Australia. Therefore, on what authority does HMRC deem Art 20 to be confined to third countries only? Thank you.

Hi Tigercrab
Under the DTA, it specifically refers to pensions and annuities and as it has not mentioned lump sum anywhere then this is why it is not allowed.
You may therefore want to review Article 26.
Thankyou.

Hello HMRC Admin 32 I could not find where or how to reclaim Witholding Tax on the self assessment foriegn income pages. Deducting it from income received in Australia doesn't fully redress the balance. Eg if $10 is deducted from an income of $100 and £90 then declared to HMRC, one will still pay 20% (or whatever is the marginal rate) on the $90, i.e. $18 meaning that $28 has been paid, ie 28%. To be fair the $10 witholding tax paid should be credited as part of UK tax on $100 i.e. $20 - $10 = $10 tax to pay. Australian income tax of any other sort than Witholding Tax can be offset in this way. I would have overpaid by $8.

Hi BrenOzUK Webster

Please refer to guidance here Tax on foreign income

Thank you

I have a client who used to work in Australia but has now returned to the UK and is considering retirement. She is interested in understanding her options for accessing her superannuation. Since her pension falls under the category of a non-QROPs pension, I would like to provide information on the tax implications involved in transferring her funds to a UK pension. Additionally, it would be prudent to explore the taxation liabilities if she chooses to receive regular income or decides to withdraw the entire amount as a lump sum, and whether this will be taxed in Australia, the UK or both?

Hi sanjay,

You would need to check with the Australian tax authorities whether there would be a tax liabilty in Australia for the transfer of the pension to a UK pension scheme.
If your client takes a sum payable periodically, at stated times, then this would be taxable in the UK and not Australia.  
Your client would declare this foreign pension in a self assessment tax return.  
There is no tax relief for 'trivial cumutated lump sums.  
If your client takes the pension as a lump sum, this would be taxable in Australia and not the UK.

Thank you.

Hi, I am a UK citizen with an Australian Superanuation. I am now eligible to draw my Superanuation as a lump sum into my savings account in Australia. If I do so and transfer my savings from my Australian savings account into my UK savings account am I liable to pay UK tax on the money transferred?

Hi Trevor Caulfield, 
The actual pension is taxable in the UK:
UK/ AUSTRALIA DOUBLE TAXATION CONVENTION
Thank you. 
 

I am a retired Australian Citizen, Resident and Australian Tax resident, and a British Citizen with my principal place of residence in Australia. I accompanied my parents to Australia as a young child back in the early 1960's when they emigrated here and I have lived here ever since. I have recently met a lovely English lady who has Australian residency and we would like to spend more time in the UK in order to see her family. (Neither of us is getting any younger). I understand that spending extended periods of time in the UK each year, could make me a “Resident for the purposes of Taxation” in the UK. My sole income, apart from a negligible amount of bank interest on savings, comes from a Superannuation pension, which is tax free in Australia. The total annual income being below the UK Tax Free Threshold. All the capital in my Superannuation Fund is derived from after tax earnings, accumulated over a large part of my working life. Tax was deducted on any investment earnings, along with any applicable fees, inside the Superannuation Fund, before determining the final net investment earnings which were credited to my account, as is required by the Australian Taxation Office. In simple terms, tax has been paid on all funds in my account. With that in mind, I have two questions. If I withdraw lump sums from the already taxed capital in my superannuation account, would this be treated as a withdrawal from savings, or as income by HMRC? As my pension income is below the UK Tax Free Threshold, would I be required to submit an annual UK Self Assessment Tax return, if I become a resident for the purposes of taxation?

Hi, I am UK citizen with an Australian Superannuation. I am in Australia now and will be returning to UK this year. I am eligible to withdraw my Superannuation (pension) as a lump sum to my Australian bank account. I want to transfer this lump sum in UK to buy a house and for UK pension fund. Do I have to pay UK taxes for this lump sum when it is transferred in UK?

Hi Keith Watson,

If you become tax resident in the UK in future years, you will be required to submit a Self Assessment tax return on the grounds that you receive an overseas pension.

Lump sum withdrawals from a superannuation fund are regarded as pension income. Foreign Tax Credit Relief can be claimed regarding any overseas tax already deducted from such withdrawals. You can see guidance here:                                                       

Check if you need to send a Self Assessment tax return                                                                 

RDR3: Statutory Residence Test (SRT) notes                                                                

Relief for Foreign Tax Paid 2021 (HS263)

Thank you.

Hi Elise65
It depends on when it is paid and when you actually return to the UK 
If you qualify for split year then you only report any foreign income for the UK part of the year :
Residence: The SRT: Split year treatment
If you do not qualify then you will need to report all your foreign income to the UK :
Tax on foreign income
The guidance at RDRM12150 at www.gov.uk will help you work out if split year treatment applies.