UK taxation of Kiwisaver withdrawals for UK tax residents

Pension benefits

Foreign pension income is generally fully taxable on a UK tax resident. Pension income is a regular amount paid in respect of retirement, but it can also be sums paid in respect of amounts set aside for income drawdown. Prior to 6 April 2017 only90% of foreign pensions were taxable, but from that date they became fully taxable. Kiwisaver schemes do not provide pension income, so lump sum withdrawals are not taxable under these rules.

Lump sum benefits – No UK funds

Lump sum payments from foreign pension schemes where there is no element of pension income became taxable from 6 April 2017. The full amount of the lump sum received is taxable minus the following:

·        The capital value of any pension paid in respect of war disability or a range of other specific exemptions including persecution

·        The value of the pension fund on 6 April 2017

·        25%of the lump sum in the same way as 25% paid from a UK pension scheme is tax-free

Lumpsum benefits – with ex-UK funds

From 6 April2015 Kiwisavers ceased to be Qualifying Recognised Overseas Pension Schemes(QROPS). Before that date, however, they could be QROPS, many were, and many received transfers of UK pension funds. To the extent that any lump sum relates to funds that derive from UK tax-relieved pension funds, they are taxable in the UK upon receipt by a UK tax resident.

The value of the ex-UK pension fund is therefore fully taxable minus 25%, which would be the tax-free element of lump sum payments made by a UK registered pension scheme.

The balance of the fund would then be taxable to the same extent as described above for “Lumpsum benefits – No UK funds”.

UK tax return

The net taxable amount of any lump sum withdrawal from a Kiwisaver scheme received by a UK tax resident should be entered on the Foreign pages of the UK tax return. There will be no foreign tax credit to claim, as New Zealand does not tax any payments from Kiwisaver schemes.

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