British expats in New Zealand who have as much as $10 billion in UK pensions have been warned to transfer their pensions to New Zealand soon to avoid losing big chunks of their savings to the taxman.
The Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Bill which sets out simplified new tax rules on overseas superannuation schemes passed its second reading in Parliament yesterday.
Much of the bill deals with the estimated 70 per cent of New Zealand residents who have overseas superannuation schemes who have not been paying the right amount, or indeed any tax, when they transfer that cash to a New Zealand scheme or withdraw a lump sum.
Senior Citizens Minister Jo Goodhew told Parliament the bill would make the rules for taxing foreign superannuation simpler and fairer.
Under the proposed changes from 1 April 2014, lump sums from foreign superannuation schemes would be taxed only when they are withdrawn or transferred to a New Zealand or Australian scheme.
The tax would depend on the investment returns made while the person was a New Zealand resident.
That was a major simplification over the existing regime which sees investment gains taxed under foreign investment fund rules.
However people who had complied with those rules would still have the option of paying tax under them when the new regime comes into effect in April next year.
In a concession to thousands of people who had paid the wrong amount or no tax on transfers, those who made a lump-sum withdrawal or a transfer to another superannuation scheme between January 1 2000 and March 31 2014, would have the option of paying tax on 15 per cent of the lump sum amount.
However superannuation advisory firm NZ QROPS has warned that with a three to four month processing time for transfers from UK pensions to qualifying New Zealand schemes, time was running out to take advantage of the concession.
NZ QROPS estimates an expat Brit with $100,000 in a UK pension scheme who had been living in New Zealand for 11 years would avoid almost $7000 tax by taking advantage of the concession.
Meanwhile, the bill also contains a number of amendments which tighten up the tax breaks for mining companies prospecting and developing gold, silver and iron sand extraction operations.
It also includes changes "to ensure that the income tax rules cater for the rebuilding activity now taking place in Canterbury" Ms Goodhew said.
The bill passed with the support of all parties other than Hone Harawira's Mana Party.