UK clients may cause legal trouble for Australian planners


Expat UK clients of Australian planners may be slugged with a 55 per cent tax on fund roll-overs exposing their adviser and superannuation fund to legal action for allowing the transfer according to a UK pensions transfer expert.
Montfort International managing director, Geraint Davies, said many Australian advisers who work with expat UK clients may not be aware of a change to tax and pension rules which took place in the UK at the start of April.
These changes, titled The Pension Age Test, require that any overseas superannuation or pension fund into which a British pension is to be transferred does not offer access to funds before age 55, unless the member retires because of ill-health
Davies said that while the UK tax office — HM Revenue and Customs (HMRC) — has a list of around 1700 Australian superannuation funds many are unlikely to remain as Recognised Overseas Pension Scheme (ROPS) to receive British pension transfers due to Australian law allowing release of funds before age 55 due to financial hardship.
HMRC has written to each of the Australian funds - many of which appear to be self-managed super funds — and requested they notify it of their compliance with the Pension Age Test changes and has stated it will remove any funds from the ROPS list if they do not comply.
Davies stated this would automatically impose a 55 per cent tax on fund roll-overs with many advisers in Australia unlikely to be aware of the changes and the possible negative impacts of any transfer arrangements in place between the UK and Australia.
"We have evidence that some Australian funds have misrepresented themselves to HMRC and have not bothered to examine their status with HMRC," Davies said.
"As such we expect that legal advice and action will be taken against advisers involved with these funds or providing advice on the transfers from the UK."
"Once HMRC gets letters back from funds that are not ROPS and people get 55 per cent tax bills we expect trouble directed at Australian super schemes and their advisers."
Davies said the issue was likely to reach an impasse with larger commercial funds which were unlikely to change their rules around early release at age 55 while HMRC would not offer a carve out to Australian funds as it remained concerned that UK pension transfers were being targeted for inappropriate advice in overseas markets.
He stated that in the short term funds should cease receiving transfers until a solution could be found between the two jurisdictions.
Recommended for you
A financial advice firm has been penalised $11 million in the Federal Court for providing ‘cookie cutter advice’ to its clients and breaching conflicted remuneration rules.
Insignia Financial has experienced total quarterly net outflows of $1.8 billion as a result of client rebalancing, while its multi-asset flows halved from the prior quarter.
Prime Financial is looking to shed its “sleeping giant” reputation with larger M&A transactions going forward, having agreed to acquire research firm Lincoln Indicators.
An affiliate of Pinnacle Investment Management has expanded its reach with a London office as the fund manager seeks to grow its overseas distribution into the UK and Europe.