A question we occasionally get asked relates to the ability of Australian expats to contribute to a super while living in the UK.
As is the case with many financial planning issues generally, and for expats specifically, the answer isn’t straightforward.
No two individual circumstances are the same. So, it’s important to say upfront that getting expert advice in relation to this should be a high priority for you.
In this case, it also boils down to the fact that in many situations it’s possible, but it’s important to consider whether it’s actually a sensible strategy.
In this article, you can discover some of the generic key issues you need to bear in mind and some of the pitfalls to be aware of.
Your future plans will have a bearing on how you contribute to your retirement fund
If your long-term plan is to ultimately retire in the UK then, given the tax incentives on contributions to your fund, it can make sense to maximise contributions into your UK pension.
For one thing, such contributions are highly tax-efficient. You receive basic-rate tax relief at source, which means that for every £80 you contribute, the government adds an extra £20. You can also claim higher and additional rates of relief through your annual self-assessment tax return if you are entitled to them.
As a result, it may make sense to maximise your UK pension contributions as far as possible. This is especially the case as, with the recent abolition of the Lifetime Allowance, there is no maximum amount you can accrue in your fund without facing an additional tax charge when you come to withdraw your funds.
The only restrictions are the amount you can contribute tax-efficiently each tax year – your “Annual Allowance” – which in 2024/25 is limited to the lower of £60,000 gross or 100% of your earnings.
You can also carry forward unused Annual Allowance from the three previous tax years, which may allow you to give your fund a real boost.
Even if you plan to leave the UK and retire in Australia, you may then be able to subsequently withdraw your accrued fund and transfer it to an Australian super where you can draw income from your fund without incurring a tax charge.
By doing this, you can create an effective “win-win” scenario for yourself of tax relief on contributions on the way in, and then no tax payable on the way out.
If you still believe that it could be advantageous to contribute to your super fund, here are five important points you need to consider before you do.
1. Your super fund needs to be able to accept contributions from overseas
The first issue you need to be aware of is that not all super funds will allow you to make a contribution while you are resident outside Australia.
Perhaps more importantly, there are restrictions on self-managed super funds (SMSF) that can prevent them from accepting any contributions from a non-resident fund member.
One possible “workaround” to this latter issue could be to make your contributions to another fund that can accept non-resident payments, and then transfer those contributions into your SMSF when you return to Australia.
2. Super contributions from the UK could affect your tax status
The ATO will base your residency for taxation purposes on a variety of different factors. These will include where you and your family are living, and your workplace.
Making super contributions while you are resident in the UK is unlikely to result in the ATO assessing you as being resident in Australia for tax purposes when there are other, more relevant factors to be taken into account.
However, an exception could be if the amounts you contribute are deemed to be significant.
For this reason, we would strongly recommend you take expert tax advice before considering making super contributions of this kind.
3. You may be able to make concessional contributions into your super fund
As an Australian resident and taxpayer, concessional employer contributions into your super have not been taxed before being received by the super fund. So, the concessional rate of tax is applied when funds are received.
However, as an Australian expat, you will not be paid super contributions from your employer. As a result, the more common type of concessional contribution made by individuals in this situation is personal contributions, up to a maximum of $30,000 each year, claimed as a tax deduction.
This can be particularly advantageous if you still have earnings in Australia such as rental income from an investment property. You can reduce your taxable income by claiming the amount you contribute to your super as a tax deduction.
In these circumstances, you will need to complete a notice of intent to claim a tax deduction form. Your super administrators will then deduct 15% tax from your contribution and notify the ATO that you want to claim a deduction for this contribution in your subsequent tax return.
4. You may also be able to use the carry forward facility to boost your contributions
You may have the financial means to make a significant contribution, in excess of $30,000 to your super from the UK.
There may also be tax advantages in doing so, such as if you have a substantial capital gain you want to offset.
In these circumstances, you may be able to “carry forward” unused concessional contributions from previous financial years.
However, you should note that to be eligible, your total super balance has to be less than $500,000 as of 30 June of the previous financial year. Furthermore, you can only carry forward contributions from the five previous tax years.
5. It’s important to take professional advice
This final point is probably the most important.
While, even as an expat, super contributions can be an effective and tax-efficient investment option, the rules can be highly complex, and mistakes could prove costly – and potentially even irreversible.
In this article, we’ve provided some of the key details and potential pitfalls of contributing to an Australian-based retirement plan while you are a UK resident. However, this list is far from exhaustive and there may be other elements to consider.
It’s imperative that, before you make any super contributions, you take expert guidance. You need to consider your personal situation and long-term financial goals, as well as the taxation implications and other issues such as when you will be able to access your fund.
Get in touch
If you would like to find out more about contributing to your super as an Australian expat in the UK, please get in touch with us.
Please note
The value of your investments can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
This article is for information only. Please do not solely rely on anything you have read in this article and ensure that you conduct your own research to ensure any actions you may take are suitable for your circumstances. All contents are based on our understanding of HMRC and ATO legislation, which is subject to change.