the truth about taxes, property and how to get a tax-free pension
However, Australian pensions are tax exempt as there is no tax relief on contributions when savers contribute. Those planning to spend an extended period in Australia may consider moving their UK pensions to Australia. It can also help reduce currency risk and lose money because of the exchange rate. But if it’s done badly, it can be costly and retirees can face 55% tax bills, according to Cole.
The pension into which the money is transferred must be of a specific type, called a “recognized eligible foreign pension scheme”, known as Qrops. There is a limit to the amount you can transfer and those transferring their pension must be between 55 and 75 years old.
Most people can transfer AUD 110,000 (£ 58,000) each tax year, and those under 65 can use the allowance for the next two years, bringing the total to AUD 330,000 (£ 175,000) .
Similar to Great Britain, the Australian system has a “lifetime allowance” which limits the amount you can have in your tax-free pension. It is lower than that of the UK, capped at A $ 1.7 million (£ 930,000). Exceeding this can result in large tax bills.
However, anyone planning the move should be aware that their UK state pension would be frozen from the time they moved to Australia. The state pension increases every year in the UK by the higher of wage growth, inflation or 2.5%, under a policy called ‘triple lockdown’. But this does not apply to those overseas in Australia.
Mr Cole said: “Over time this can have a drastic impact on the value of the state pension as prices go up, but the amount you receive will stay the same.”
Obtaining the right to move: sorting your visa
There are several visas that British retirees can apply for to secure their right to move down. Unfortunately, the main “retirement visa” has been closed to new applicants.
The other three main streams include “skilled stream”, “family stream” and “special eligibility” visas.
Those with immediate family in Australia can migrate permanently, as the resident can act as a sponsor. This includes a Parent Visa, Age Resident Visa, Caregiver Visa, or Remaining Parent Visa. They need to be able to prove that they have enough savings or retirement income to stay afloat. It ranges from $ 5,000 to AUD 10,000.
The “parent visa” allows those who have children in Australia, who have Australian status, to settle there. However, this visa will only reopen to retirees in 2022 and it can be quite expensive. The basic application fee is AUD $ 4,350 (£ 2,310), with an additional fee of AUD $ 2,175 (£ 1,156) and a second payment of AUD $ 2,065 (£ 1,098).
Anyone with high net worth can apply for Special Investment Visas, which require applicants to have at least A $ 2.5million, equivalent to £ 1.3million in personal assets and have managed or owned a business.