How much should advisers have known about tax on transfers?

Authorised financial advisers who did not adequately advise people transferring their pensions to New Zealand of the possible tax implications may have been in breach of their Code of Conduct.

Tuesday, May 3rd 2016, 6:00AM

by Susan Edmunds

Inland Revenue is pursuing people who it believes have not paid adequate tax on foreign pensions transferred to New Zealand.

The rules were changed in 2014 so that transfers would be taxable when the money arrived in New Zealand. The longer the person had been a resident of New Zealand, the more tax there was to pay.

Before that, some transfers were taxed under FIF rules but the rules were complex and many migrants did not pay tax at all.

Now, those who are being asked for tax on pre-2014 transfers are claiming they should have been told they might be liable.

Hawkes Bay woman Andrea Gordon said it was not fair that she was being lumped with a bill for $11,000 from the Inland Revenue when she had never been told tax was a possibility.

She said her adviser should take some responsibility as commission was paid on the transfer. Her adviser, Mike Wilkey, of Financial Migration Group, said there was conflicting information at the time about what the potential tax implications could be.

The Financial Markets Authority said advisers had an obligation to work with care, diligence and skill. “AFAs need to abide by the AFA code of conduct which states they should advise clients of costs or financial implications to any transaction.”

The FMA offers guidance that says customers should seek professional advice and consider talking to a tax specialist if they are considering a pension transfer.

A spokeswoman said a disputes resolution scheme was the best place for a customer to take their complaint about a tax bill.

Luke McKenzie, of Move My Pension, said many advisers had been getting in touch with clients who could be affected.

“The issue is no one including the IRD has come and said effectively all transfers pre-April 2014 could be liable for tax now regardless of what they thought or were told when transferring.”

But he said it was not all bad news for the clients.

“In general terms the client has transferred a UK pension that they have received at least 20% UK Government tax rebates on contributions, employer tax-free contributions and very low tax while growing in the UK.

“Transferring it to New Zealand avoided paying any tax on the pension in the UK - up to 40% at retirement - allowed them to access all their funds in New Zealand regardless of age – pre-2006 - or age 55 from 2012, releasing the funds tax-free from a NZ superannuation scheme.

“In the worst case if the client is liable for the 15% concessionary tax they will end up paying 5% of their transfer value in tax but have still got their pension 95% tax-free.”

But he said the issue was likely to get a lot bigger as IRD identified more people potentially in breach.

Tags: pension transfers QROPS