SMSFs warned on potential 55pc tax
An SMSF education consultant and former Cavendish veteran has warned SMSF practitioners about the significant tax consequences of transferring money from UK pension funds into an SMSF.
Speaking at a Chartered Accountants Australia and New Zealand event this week, SMSF education consultant Tim Miller said practitioners should be aware that transferring money from a super fund that contains an element of UK pension money could potentially result in those UK assets being taxed at up to 55 per cent, if the transfer is classified as an unauthorised payment.
“Every other country [outside the UK] has the concept that once the [money] is out of their pension system and into our system, it’s just a non-concessional contribution,” said Mr Miller.
The UK, on the other hand, wants to know what happens with the money, which can lead to unauthorised payment issues, he said.
“If you transfer your [pension] money over to an SMSF and it has an element of UK money and you put it into a non-UK approved fund, that’s an unauthorised payment and the taxation on that can be as high as 55 per cent,” Mr Miller warned.
“You need to be careful if you are transferring money from foreign superannuation funds into [a] self-managed fund.”
Mr Miller also raised some of the tax liability issues that come from commuting a pension from one fund to another, in general.
“When you commute a pension it’s no longer a pension, so when we’re talking about rolling benefits to another superannuation fund, it’s [a] chicken and egg scenario," he said. "If you try to do an in-specie transfer of assets from an SMSF in pension mode, you must stop the pension first but if you stop the pension those assets are now in accumulation."
Rolling those assets over from accumulation to another fund will cause a capital gains tax event, he said.
“If you sell the assets before you stop the pension then its exempt current pension income so timing can become critical,” he said.
“The rolling over of assets from one pension to another could create a taxation liability and we need to be mindful of what that liability might be.”