When you retire as an Australian expat living in the UK, much of your income will likely derive from your accrued super fund back in your country of birth.
Likewise, if you are a Brit who has previously spent time working in Australia, you could be in the same position.
How and when you access your super fund will depend on your long-term retirement plans.
Of course, if you intend to retire in Australia, you can leave your super invested, and it will be there waiting for you to access when you return.
However, if your long-term plan is to retire in the UK, you will need to plan how to access your super fund in a way that minimises your tax liability. This is a key aspect of cross-border retirement planning, and understanding UK tax on Australian supers is essential.
UK and Australian retirement funds are treated differently from a tax perspective
As you may be aware, in Australia you pay a concessional rate of tax on your contributions into a super fund but can then usually take income and lump sums from your fund free of tax.
The reverse effectively applies in the UK. You benefit from tax relief at your marginal rate of Income Tax on your contributions, but you’ll pay tax on withdrawals, apart from your 25% tax-free entitlement.
While this fundamental difference makes it highly advantageous to transfer your UK pension funds to an Australian super by using a Qualifying Recognised Overseas Pension Scheme (QROPS), the reverse is not possible. You cannot transfer your Australian super into a UK pension arrangement.
This means that retiring in the UK and taking retirement income from your super can be a complex process.
Not only will you need to deal with a super provider in another country, but also the everchanging tax rules between the UK and Australia. bdhSterling are able to support you with what your specific circumstances means to the potential tax due on a withdrawal and help you strategise how to best utilise your Super as part of your retirement planning.
As a UK tax resident, you will need to declare any Australian superannuation income through your self-assessment tax return, regardless of whether it is paid into a UK or Australian bank account.
However, it is possible to extract lump sums from your Australian super and create an investment portfolio in the UK from which you can draw income. You can then use this income to form part of a tax-efficient retirement plan.
There are several tax-efficient investment options for your super lump sums
You can access several tax-efficient investment options and exemptions after withdrawing a super fund in the UK.
ISAs
Each individual can invest £20,000 a year (2025/26) into an ISA. You will not pay Income Tax on the interest or dividends you receive, and any profits from your ISA investments are free of Capital Gains Tax (CGT).
As a result, you and your spouse or partner can invest a combined £40,000 into ISAs in each tax year and then draw tax-free income from your funds.
Non-ISA investments
You have a CGT Annual Exempt Amount, and any investment gains within the annual exemption are not liable for CGT. The annual exemption for each individual is £3,000 for the 2025/26 tax year.
Your UK pension
Perhaps most notably, between age 60 and 65 (if your earnings meet certain criteria), you may be able to access 10% a year tax-efficiently from your super. This is known as the transition to retirement income stream (TRIS). You could then contribute this sum into your UK pension if you wanted to, within the tax-efficient Annual Allowance.
Here’s an example:
- Mrs Jackson is 60 and has the equivalent of £150,000 in her Australian super.
- She can take £15,000 (10%) out every year.
- She uses that 10% to make UK pension contributions, making a tax saving.
- If she were a basic-rate taxpayer, she’d save £1,538.
- If she were a higher-rate taxpayer, she’d save £3,076.
Be aware that if you have already flexibly accessed a UK defined contribution (DC) pension by the time you use the TRIS, your tax-efficient contributions could be limited to £10,000 a year. Seek advice before you make significant pension decisions.
Your investment strategy is all-important
Just leaving any lump sum from your super in a bank or savings account makes little sense if you’re looking for any investment return on your money.
Inflation is likely to erode the purchasing power of your cash savings over time. You could also incur tax on the interest.
Because of this, you may wish to consider putting together an investment portfolio, using the range of tax-efficient vehicles and investment opportunities available in the UK.
How you invest the money you draw from your super fund will have a key bearing on your future wealth.
The better return you get, the longer your fund will last, and the greater your chance of living a comfortable retirement free from financial worries.
The investment strategy you adopt will depend on a series of factors. These could include:
- Your personal circumstances
- How much income you will need
- Your attitude to investment risk
- How long the money will remain invested.
You should also bear in mind that these factors could be subject to change, so you should regularly review your investment and income plans to ensure they remain aligned with your objectives.
You should look to mitigate the effect of currency risk
As an Australian expat retiring in the UK, you are likely to transfer substantial amounts from Australian dollars into UK sterling.
Because of this, currency risk is a factor you need to plan for, and you should take steps to protect your accrued value.
We would strongly recommend that you use a specialist currency provider, rather than straightforward bank transfers. Not only can this help reduce the cost of transferring money to the UK, but you will also have access to a range of financial instruments – such as forward pricing – to ensure you get the best possible exchange rate.
We can help you create an efficient retirement income plan
Using lump sums from your Australian super to create a diverse portfolio, which will provide you with a tax-efficient retirement income, can be a complex process.
There are many different variables that you need to consider. You should also be prepared to make changes to your plans as your personal circumstances and financial needs change.
At bdhSterling, we have licences in both the UK and Australia for full financial planning and can help you develop a comprehensive plan if you’re intending to retire in the UK.
Get in touch to find out more.
Please note
The value of your investment 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.