Pension Funds in the United Kingdom and the FIF Rules|
Grange Associates Ltd - 24 January 2012
The New Zealand foreign investment fund (FIF) rules explicitly cover rights
to benefit from foreign superannuation schemes as a beneficiary or member. The FIF rules apply if the foreign
superannuation fund is not exempt under either one of the following;
- de minimis rule,
- new resident's accrued superannuation entitlement exemption (section EX42 of the Income
Tax Act 2007), or
- non-resident's pension or annuity exemption (section EX43).
In addition, if you are a transitional resident an exemption can apply for the first 48
months of residency so that certain foreign sourced income does not need to be returned.
However, on 6 April 2006, the United Kingdom introduced the Qualifying Recognised Overseas Pension Scheme (QROPS).
This scheme allows the transfer of UK pension funds to overseas providers that meet certain requirements.
It's Inland Revenue's view that from 6 April 2006, the exemption from the FIF rules can't apply to resident
investors who have a beneficial interest in a UK pension scheme which will allow the transfer into a QROPS unless
the de minimis applies or they are transitional residents.
However, this won't apply if the individual scheme rules don't allow a transfer; impose significant "penalties" for
transferring interests out of the UK scheme; or if there is a substantial decrease in the present value of any
benefits on transfer to a QROPS.
De Minimis Rule
The de minimis rule exempts rights with a cost of less the NZ$50,000. The cost includes all contributions
made by or on behalf of the person or the person’s employer. Where a transfer from another superannuation scheme
was made (ie changing funds) it is the original contributions by or on behalf of the person or the person’s
employer that are taken into account.
New Resident's Accrued Superannuation Entitlement
The new resident's accrued superannuation entitlement exemption applies to individuals with funds under which the
rights accrue either before becoming a New Zealand resident or within 4 years of doing so. The value of the
rights is calculated by deducting the market value of the rights at the end of the period from the market value of
the rights at the beginning of the period.
Such rights must have been acquired either through the person’s employment or the person must be wholly or mainly
self employed when either acquired or at the time the exemption is being applied.
The contributions to the fund by or for the person must be calculated by either some fixed relationship to the
person’s income from employment or self-employment, or to provide a benefit that bears a fixed relationship to the
person’s inflation adjusted income from employment or self-employment.
The contributions must only be made by the person, the person’s employer or associate of the employer, or by
transfers from another similar qualifying superannuation scheme (ie changing funds).
Finally, the future benefits of the fund must not be able to be assigned or cashed in, except where the person
becomes physically incapacitated, transfers to another similar or reaches normal retiring age, assigns the benefits
to a spouse under a relationship property agreement, or at a cost a substantial decrease in the present value of
the benefits. Where rights are acquired under a relationship property agreement the exemption can still
apply to the recipient.
Non-resident's Pension Or Annuity Exemption
The non-resident's pension or annuity exemption applies to a person’s rights to benefit from a pension or annuity
provided by a FIF.
The person must have funded the acquiring of the rights before becoming a New Zealand resident, within 3 years of
doing so, or in anticipation of ceasing to be a New Zealand resident.
The future benefits of the fund must not be able to be assigned or cashed in, except where the person assigns the
benefits to a spouse under a relationship property agreement or at a cost a substantial decrease in the present
value of the benefits.
This exemption does not apply where the rights were acquired before the 1997 income tax year and the person chose
to treat them in a FIF in that or any subsequent year.
All information is correct at the date of article
publication. Please note we provide the information as a service only. Accordingly, the contents are
not intended as a substitute for specific professional advice and should not be relied upon for that
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