Tax on Australian super lump sum

Hello We are planning to return to the UK around July 2023. We have been advised that we will qualify for case 4 split year treatment (starting to have a home in the UK only). Assuming that is correct, if we withdraw our Australian super as a lump sum in May 2023, will it be liable to UK or will it fall outside of the scope, as it will be captured within the overseas part of the split year? Thanks, Nikki

Hi,

RDRM12010 advises Under the SRT, an individual is either UK resident or non-UK resident for a full tax year, and at all times in that tax year. However, if during a year the individual starts to live or work abroad, or comes from abroad to live or work in the UK, the tax year will be split into 2 parts, if their circumstances meet specific criteria: a UK part for which they will be charged to UK tax as a UK resident an overseas part for which, for most purposes, the individual will be charged to UK tax as a non-UK resident.  

RDRM12010 - Residence: The SRT: What is a split year 

This means that for the most part, foreign income in the non-UK resident period is not taxable in the UK. Some types of income are still taxable in the UK, such as income from property.  

RDRM12160 goes on to advise, The overseas part of the tax year starts at the beginning of the tax year and ends the day before the earliest point at which an individual meets the only home test.  The UK part of the tax year is the period from the end of the overseas part until the end of the tax year.  

RDRM12160 - Residence: The SRT: Split year treatment: Case 4: The overseas and UK parts of the tax year

Thank you.
 

Thank you for the clarification.

I worked in Australia for the Health service from 1992 to 2002 and paid into a superannuation scheme called the State Superannuation Scheme (SASS). When I left and returned to the UK in 2001, I became a deferred member, now I have reached retirement age (60) and I am entitled to a lump sum payment from this scheme. This can be paid into an Australian bank account (which i still have) or be rolled over into another superannuation scheme, which allows me to withdraw payments in a staged manner. (i.e. paid out as a pension). Please can you advise at what point with either of the options, am I liable (if at all) to declare and / or pay UK tax here in the UK and what the tax rate is likely to be? Also, will I be taxed on the full amount or only part?

Hi Nigel Giles,

Article 18 of the UK and Australia double taxation agreement advises that pensions paid 'periodically', for example, monthly are only taxable in the state the individual is resident in, so if you are resident in the UK, it is taxable in the UK. The same cannot be said for lump sum payments. If the lump sum is paid in Australia from a pension there, it is taxable there.

UK/ Australia Double Taxation Convention

Thank you.

HMRC Admin 32 - Many thanks for the clarification. Looks like I need to contact the ATO to ascertain the total amount tax payable on the lump sum, to see which is the preferred option for us in bringing these funds to the UK. Best Regards Nigel Giles

HMRC Admin 32 - Further to my previous reply, I notice the following of reading Article 18 - "Salaries, wages and other similar remuneration, other than a pension or annuity, paid by a Contracting State or a political subdivision or local authority of that State to an individual in respect of services rendered in the discharge of governmental functions, shall be taxable only in that State" It clearly states "other than pension...." How is this relevant to my question, as I am asking specifically about a pension. Do you mean Article 17? If not, please can you further explain how Article 18 relates to my query. Many Thanks 

HMRC admin 32 - re your comments on taxation of lump sums: chapter 2 of this page indicates that some lump sums are taxable https://www.gov.uk/government/publications/pension-tax-for-overseas-pensions/pension-tax-for-overseas-pensions And this page says the same thing: https://www.gov.uk/tax-foreign-income/foreign-income-thats-taxed-differently

Hi Nigel Giles,

It is Article 17 that refers for the pension.

For tax relief to apply it must be a regular payment as no relief is due on trivial pension commutaiton lump sum payments.

Thank you. 
 

Hi, It's Nigel Giles again. I would need to get a definitive answer to a basic question as this has major implications in my life here in the UK, as I do not wish to fall foul of any rules and be liable for a large tax bill. From a number of responses on this forum there seems to be conflicting or ambiguous information regarding how HMRC will deal with a LUMP SUM payment from an Australian Superannuation Scheme for a UK resident. It seems to come down to the definition of a LUMP SUM. This needs to be clarified in plain English please. In basic terms I am now entitled (age 60 - retired) to withdraw the whole of my Superannuation benefit from the State Authorities Superannuation Scheme (SASS) and place the sum into my personal Australian Bank Account and it is TAX FREE as far as the Australian Tax Office (ATO) is concerned - that has been confirmed by the ATO. Previous responses from HMRC Admin 32 has implied that this IS taxed in Australia and NOT liable to tax in the UK. However, this conflicts with the response from the ATO and also there have been responses on this forum that have implied it is taxed in the UK and also that it is not taxed in the UK . Please Please can you confirm / clarify whether I will be liable to pay TAX here in the UK if I should have this LUMP SUM transferred out of SASS to my personal bank account in Australia. I have been told there needs to be a clear understanding of the term lump sum as that is key. Please can you respond as soon as possible, as I am trying make this big decision in my life without falling foul of HMRC.

Pension Tax for Overseas Pensions - Chapter 2 states: the following "Currently only 90% of a foreign pension or annuity payable to a UK resident (except those claiming the remittance basis) is chargeable to UK tax". It also states "From 6 April 2017 lump sums paid by non-UK pension schemes to UK residents will be taxable regardless of the type of pension scheme paying the lump sum. However the taxing provision and the taxable amount will depend on the nature of the scheme making the lump sum payment. Registered pension schemes- If the non-UK scheme is registered, any lump sum will be taxable in the same ways as lump sums paid from a UK based registered pension scheme. The taxation of lump sums paid from registered pension schemes remains unchanged" Please can you clarify whether this means 1. 90% of the lump sum is taxable, 2. 25% of that 90% is tax free.

Hi,

DT2654 summarises the provision of the treaty with Australia relating to income beneficially owned by UK residents. Pensions are covered under Article 17 and are taxable in the UK on UK residents.

Please refer to the Foreign notes on page 8 re: Overseas pensions: the 10% reduction was abolished on 6 April 2017 so you will pay tax on 100% of your foreign pension (including pensions taken as a lump sum).                                      

DT2654 - Double Taxation Relief Manual: Guidance by country: Australia: Treaty summary      

Foreign notes 

Thank you.