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.
AUTHOR
Jason Spits
Recommended for you
ASIC has released the results of its first adviser exam to be held in 2025, with 241 candidates attempting the test.
Quarterly Wealth Data analysis has uncovered positive improvements in financial adviser numbers compared with losses in the prior corresponding period.
Holding portfolios that are too complex or personalised can be a detractor for acquirers of financial advice firms as they require too much effort to maintain post-acquisition.
As the financial advice profession continues to wait on further DBFO legislation, industry commentators have encouraged advisers to act now in driving practice efficiency.
