Australian Expats Retiring in the UK and Drawing Income from Australian Superannuation – Retiring overseas is a dream for many Australians, and the UK, with its rich history and close ties to Australia, is a popular choice.
However, retiring in a foreign country comes with its own set of financial complexities, especially concerning tax obligations.
For Australian expats retiring in the UK and drawing an income from their Australian superannuation as an allocated pension, there are several tax considerations to keep in mind.
- Dual Taxation Agreement (DTA) between Australia and the UK: Australia and the UK have a DTA that aims to prevent double taxation of income. This means that income that’s taxed in one country won’t be taxed again in the other. However, understanding how the DTA applies to your circumstances is crucial.
- Taxation of Australian Superannuation in the UK:
- Allocated Pensions: For Australian expats living in the UK, allocated pensions (account-based pensions) from their Australian superannuation fund are generally taxable in the UK, and they’ll need to declare this income on their UK tax return.
- Lump Sum Payments: If you take a lump sum from your Australian superannuation while a UK resident, it may also be taxable in the UK, depending on various factors, including the type of payment and your age.
- Australian Tax Considerations: Even if you become a non-resident for tax purposes in Australia, your Australian superannuation fund will still withhold tax from your pension payments. The withheld rate is 15% for amounts up to the low-rate cap amount and 45% for amounts above this cap on the taxable components. However, the DTA between Australia and the UK can affect the amount of Australian tax you pay.
- UK Taxation on Foreign Pensions: The UK generally taxes residents on their worldwide income. Income drawn from an Australian superannuation pension will usually be subject to UK income tax. However, there are some reliefs and provisions that might apply to reduce the taxable amount.
- UK Inheritance Tax (IHT): As a UK resident, your worldwide assets could potentially be subject to UK IHT on your death. While superannuation is generally considered outside of your estate for Australian purposes, the UK might treat it differently. It’s crucial to understand these implications and potentially plan your estate accordingly.
- Residency for Tax Purposes: The issue of tax residency is crucial. Even if you live in the UK, you might still be considered a tax resident of Australia, depending on factors such as domicile, the permanency of your move, and ties to Australia. Your tax obligations could vary significantly based on your residency status.
- National Insurance Contributions in the UK: If you’ve previously worked in the UK, you might be entitled to a UK State Pension. Making voluntary National Insurance contributions could boost your UK pension entitlement.
- Financial Planning and Currency Fluctuations: Drawing an income in AUD and spending in GBP exposes you to currency risk. Working with a financial advisor who understands both Australian and UK financial environments can help in strategizing to minimize this risk.
Retiring in the UK as an Australian expat brings numerous tax considerations, particularly if you’re drawing income from an Australian superannuation.
It’s vital to stay informed and seek advice from professionals knowledgeable about both Australian and UK tax systems to navigate the complexities and ensure compliance while optimizing your tax position.