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From the desk of Phillip Cowley.

I am a Chartered Accountant with a background in Aged Care,so have worked at the coal face in terms of financial reports and budgets for resthomes, hospitals, dementia units and independent living retirement villages.
I have now set up a chartered accounting practice, the bulk of my clients are people who have retired at 65 from employment and then become self employed with small businesses. Some of my clients have complex investments requiring knowledge of the foreign investment rules. In particular I have been gaining expertise in helping clients with UK pensions.  I work with clients who have UK pensions and will share a couple of scenarios with readers that I have worked on recently.  The New Zealand Inland Revenue Department are now looking very closely at retired people with offshore superannuation funds as there is an opportunity to generate significant tax revenue.

 Scenario 1

A retired person moved from the UK to New Zealand and had a UK State pension.  Firstly this particular person moved to NZ after 1 April 2006 and was able to take advantage of the 4 year temporary tax exemption.  This means that they don’t have to pay tax in New Zealand on their overseas sourced income for 4 years.  This doesn’t apply to all types of overseas income but the UK state pension does apply.  The next stage is that the client was taxed at source in the UK on their state pension. We were able to claim back this tax in the UK from the date the person became resident in New Zealand.  This is done by filling in a (UK) HM Revenue and Customs form called a "Form New Zealand Individual".  This form details the tax to be claimed back and has to be certified by the New Zealand Inland Revenue Department.  After certification it is sent off to HMRC and from there the HMRC organise the refund of the UK sourced tax.  Hence the client will receive their state pension tax free for four years.  After the 4 year time period is up they will be taxed in New Zealand on their UK state pension. Under the terms of the UKNZ Double Tax Treaty pension income is taxable in the State that the taxpayer is a tax resident in. Also UK tax paid can not be offset against your New Zealand tax so has to be claimed back using the "Form New Zealand Individual". 

 Scenario 2

A retired person moved to New Zealand from the UK prior to 2006 and so is not eligible for the 4 year temporary tax exemption.  She had a UK state pension and other superannuation funds.  This person lived off her superannuation funds for 10 years oblivious to tax considerations.  She was a tax resident in New Zealand and under the terms of the UKNZ Double Tax Treaty the pension income is taxable in New Zealand.  During the last 10 years there have been various complex changes to the taxation of offshore pensions.  Eventually the client had to file several years of tax returns and incurred a considerable tax bill as a consequence. I will not go into detail here of the Foreign Investment Fund regime  and the complexity of the tax rules but the critical thing is that if you have offshore superannuation funds doing nothing is not an option.

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About Phillip Cowley