With the introduction of Flexi Access you have the flexibility to access your benefits up to 100% of the value of your funds, I would suggest you discuss this in further detail with a suitable qualified professional on your ability to access your pension benefits when considering your options.
You need to be aware of changes that were introduced in April 2017 I f you are considering withdrawing 100% of your UK Pension Benefits as a lump sum payment (should your UK Pension Provider allow this option) as any lump sum paid in excess of the 25% tax free amount will be taxed in the UK by your pension provider.
You may be eligible to claim a part refund of the tax due to your entitlement to UK Personal Allowances from HMRC. Any tax paid on amounts over and above the personal allowance will be available to claim a foreign tax offset in Australia.
However, if you have other UK sourced income in the year of withdrawal that will utilise your personal allowances, they will not be available to reduce the UK tax due in relation to the lump sum payment. Should any of the lump sum payments fall into a higher rate tax band, due to the basic rate band being utilised by other income, additional tax may be payable to HMRC.
Taxation of a UK Lump Sum Payment
You would need to report on your Australian tax return the amount of the lump sum that relates to your applicable fund earnings. In general terms, the applicable fund earnings are the earnings on your foreign super interest which have accrued while an Australian tax resident.
You are only assessed on the income that you have earned on your benefits in the UK Pension Scheme during your Australian residency period. Earnings made during periods of non-residency, and contributions and transfers into the UK Pension Scheme, do not form part of the taxable amount when the lump sum benefit is paid.
Therefore, the ‘applicable fund earnings’ amount in respect of the lump sum received from each of the UK Pension Scheme would be calculated by deducting the Australian dollar equivalent of the amount just before the residency date from the amount on the day of receipt. Both amounts should be translated using the exchange rate applicable on the day of receipt.
We at GM Tax can provide you with a comprehensive guide to your UK & Australian tax position when considering accessing your UK pension benefits, please call one of our offices or sent an online enquiry via our website.