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Tax wizardry of Oz loses magic for expats

Key changes to Australia’s pension rules could prove costly for people planning to move Down Under.

Australia has the biggest British expat population in the world, with 1.3 million UK citizens living there.

Due to the tax position in Australia, people often transfer their pension benefits shortly after emigrating.

This is because if people emigrate and leave the money in a UK personal pension, they will pay Australian tax on the growth in the fund each year until it is transferred or they start taking benefits.

On reaching retirement and drawing benefits from the UK fund, all of it is taxed as income, including the tax-free lump sum.

If the benefits were transferred to Australia shortly after the individual emigrated, there would be little or no tax on the growth and the whole fund could be taken tax-free at retirement.

Similar provisions apply to death benefits.

Due to a rule change, after July 1, the maximum contribution that can be made to an Australian fund in a tax-efficient manner is A$150,000 a year – around 60,000.

Standard Life pensions technical manager Andrew Tully says people looking to transfer benefits should do so before July or may have to phase any transfer over a number of years.

He says: “People in the process of emigrating to Australia should take advice and consider carefully whether to transfer their pension benefits overseas.”

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