If you’re an Australian resident with a sizeable superannuation balance and considering bringing over your UK pension, recent developments could dramatically affect your tax outcomes. The Australian government has proposed a new tax targeting high super balances—those over $3 million—which could significantly impact both existing super holders and new contributors via pension transfers.
What’s Changing?
Division 296, a proposed law, introduces an additional 15% tax on earnings related to the portion of your super balance above $3 million. That lifts the effective tax rate from 15% to 30% on that excess amount.
But it goes further:
- It includes unrealised gains – meaning you could be taxed on the paper value of assets you haven’t sold.
- The $3 million cap isn’t indexed to inflation, so more Australians will fall into this bracket over time.
- No refunds are available if your balance drops after being taxed, though you may carry losses forward.
- The ATO will issue tax bills annually, payable either from personal funds or directly from your super.
What Does This Mean for UK Pension Transfers?
If you’re thinking about transferring a large UK pension into your Australian super, here are the key considerations:
1. You May Breach the $3 Million Cap
Transferring a significant UK pension into your super could push you over the cap—triggering the additional tax on future earnings. While today only around 80,000 Australians are affected, Treasury estimates suggest half a million could be caught over their lifetime due to lack of indexation. There is also speculation that the cap may be reduced to $2m having further consequences.
2. You’ll Be Taxed on Unrealised Growth
Say your UK pension transfer buys assets in your super fund (like shares or property). If those assets increase in value—even without being sold—you may owe tax on that “unrealised” gain, potentially creating cashflow challenges. Many people have their commercial properties or company shares in their superannuation funds, this could create significant challenges, especially if their value were to grow significantly without any liquidity path – such as a revaluation of commercial property, or an increase in unlisted shares or share options value.
3. Your Australian Super Is Already Taxed Differently
The UK and Australia have different tax regimes. UK pensions are generally taxed when you draw on them; in Australia, concessional tax is applied during accumulation and zero tax in the pension phase—unless this new tax applies.
Bringing a UK pension into a taxed Australian environment, particularly under the new rules, may significantly reduce the effective value of your transfer.
Should You Still Transfer?
It depends on:
- Your current super balance
- The size of your UK pension
- Your retirement timeline and investment plans
- Your liquidity needs—especially if your super includes illiquid assets like property
Final Thoughts
While the Division 296 tax is not yet law (as of May 2025), the government is committed to reintroducing it with a likely start date of 1 July 2025. The critical date for your balance is 30 June 2026, so there’s still time to plan.
If you have both a large UK pension and a large Australian super balance—or expect to in future—you’ll want to review your strategy carefully. Tax treatment, timing, and structure all matter more than ever. Professional advice is strongly recommended, speak to us today to understand if other solutions might better suit your needs.
