Migrants say they are being handed tax bills they cannot pay
British migrants who brought their pension funds with them to New Zealand are angry about facing hefty tax bills when they are not allowed to access transferred money to pay them.
Inland Revenue is sending letters to taxpayers it suspects withdrew or transferred money from foreign pension funds between 2000 and March 31, 2014, without paying adequate tax.
Pension transfers are tax-free if they are made within four years of coming to New Zealand.
But outside of that time frame, there is a charge.
The rules were updated in 2014 because there were concerns many people were not applying them properly..
The longer someone is resident in New Zealand before they transfer their account, the more tax they pay.
Tax specialist Terry Baucher is taking up the fight on behalf of scores of Brits who find themselves caught by the new rules. He said: "It is a disgrace. It has a terribly compounding effect. More people are coming out of the woodwork because pressure is being applied."
He said he had dealt with a number of cases of people struggling, one who owed more than $40,000 but did not have access to money to pay it.
Those who cannot pay the tax bill upfront can make an arrangement with the IRD to pay it off but pay a use of money interest charge of 9.21 per cent.
British migrant David Wright said he and his wife were devastated to receive a letter from IRD after Christmas telling them that they could owe tax.
Their bill might be as high as $25,000 – with any applicable penalties on top.
Wright moved to New Zealand as a police officer in 2006. He had been contributing 12 per cent of his salary to the fund while working in Britain.
He said he was never informed that there could be a tax bill due because of his pension transfer.
He said it did not seem fair that New Zealand was staking a tax claim to the money.
"These pensions were a direct result of voluntary contributions by ourselves directly from our UK salary as part of our superannuation scheme and we were subjected to taxation. At no stage should New Zealand stake any claim of right to taxation on this. The irony and injustice of this is that we have invested this money into New Zealand and hugely contributed to this economy."
If he had known, he might have accepted it as part of the cost of moving, he said, or could have decided against shifting to New Zealand.
He said his only option to pay such a bill would be to sell his Rothesay Bay, Auckland, house. "I cannot see any way out of this, I cannot see how I can possibly pay this, I would be literally better off dying and leaving my life cover to pay the bill."
British migrants or people with a UK pension, who transferred it between 2000 and 2014 were given an amnesty when the new tax rules were introduced and allowed to pay tax on 15 per cent of the transferred amount, if they had not paid the correct amount at the time of transfer.
But that amnesty is not available to those who claimed Working for Families or have a student loan.
Industry practitioners said the potential problem of how tax liabilities would be met was raised when tax changes were first proposed.
But they said Inland Revenue had suggested people could get around it because KiwiSaver schemes allowed people to withdraw money to pay their tax bills, at that time.
Last year however, all the country's KiwiSaver schemes lost their qualifying recognised overseas pension scheme (QROPS) status. They can no longer accept pension transfers and money already transferred into the schemes is trapped.
And from December this year, non-KiwiSaver schemes that still have QROPS status will be affected by a rule change that will limit the amount people can withdraw at age 55 to no more than 10 per cent of their total balance.
An Inland Revenue spokesman said taxing residents on foreign superannuation schemes provided consistency.
The new rules introduced in 2014 gave more clarity than the previous system of taxing on accrual under the foreign investment fund (FIF) rules or on receipt, depending on the structure of the foreign scheme, he said.
"If anyone in this situation is having difficulty meeting their obligations, we would encourage them to get in contact with Inland Revenue as soon as possible to work out a suitable repayment plan."
Alun Rees-Williams, director of Britannia, one of the country's biggest pension transfer firms, said there had been a drop in the number of people wanting to move their money.
He said that was partly because of the tax changes, but also because of changes to the rules in Britain. There had also been a rush of people trying to get through during the amnesty period.
Rees-Williams said he had dealt with clients who found they had to pay subsidies back to Work and Income because their pension transfers were counted as income in a tax return, which pushed them over the threshold.
"Even though they never received a cent in their pockets."