The proposed increase in New Zealand’s FIF threshold affects UK pension transfers to New Zealand. The current de minimis threshold is proposed to increase from $50,000 to $100,000 meaning a higher hurdle needs to be met for using a second, often more advantageous, tax method called the formula method on pension transfers.
The issue is that the foreign superannuation formula method is linked to the FIF threshold through the low-value FIF superannuation interest rules.
If the FIF threshold increases to $100,000, and the foreign superannuation rules are not carved out, some people who currently qualify for the formula method may lose access to it.
That could leave them with the schedule method instead, even where the pension has made little or no growth.
Why the FIF threshold affects UK pension transfers
Budget 2026 includes a proposal to increase the FIF de minimis threshold from $50,000 to $100,000.
For ordinary overseas investors, that may be a helpful simplification. It could reduce the number of people who need to apply the FIF rules to foreign shares and other overseas investments.
But for some UK pension transfers, the result could be very different.
The formula method can be important where a pension has had poor investment performance after the person became New Zealand tax resident. It can produce a more accurate taxable amount because it looks more closely at actual growth.
The schedule method is different. It applies a set percentage based mainly on how long the person has been New Zealand tax resident after their exemption period ends.
If the formula method is unavailable, a person may have to declare taxable income under the schedule method even where the pension has fallen in value.
Real example: when the formula method matters
One QROPSNZ client moved to New Zealand in 2016. He later transferred his UK Armed Forces pension to a Sovereign Pension Scheme in Gibraltar in late 2019.
At the end of his New Zealand transitional resident exemption period, the scheme was worth GBP 67,081.
The pension then suffered significant losses. The client had received poor investment advice from a Dubai-based offshore adviser, with many investments later going bankrupt. The scheme also had a high fee structure.
By the time he transferred the pension to New Zealand, it was worth only GBP 35,015.
Under the schedule method, he would have had to declare 31.80% of the transfer value as taxable income. That would have produced taxable income of approximately GBP 11,135, before conversion to New Zealand dollars.
However, because his relevant interest was above the current $50,000 threshold, the formula method was available.
The formula method produced $0 taxable income.
That was the fairer result. The pension had not grown. It had lost significant value.
Under the proposed increase to a $100,000 FIF de minimis threshold, a client in this type of position could fall below the new threshold. If the foreign superannuation rules are not carved out, the interest could become a low-value FIF superannuation interest, meaning the formula method may be blocked.
The outcome could be harsh: a person may have to pay tax under the schedule method on a pension transfer that has already suffered major losses.
The legislative issue
The problem comes from the way the Income Tax Act 2007 links the foreign superannuation rules to the FIF rules.
The formula method is dealt with in section CF 3. But section CF 3 also refers to a low-value FIF superannuation interest.
A low-value FIF superannuation interest is linked to whether the person has FIF income or loss under sections CQ 5 and DN 6.
Those sections currently contain the $50,000 FIF de minimis threshold.
| Provision | What it does | Why it matters |
|---|---|---|
| Section CF 3 | Contains the foreign superannuation withdrawal and transfer rules. | This is where the formula method sits. |
| CF 3 low-value FIF rule | Links some foreign superannuation interests to the FIF de minimis rules. | This creates the possible flow-through issue from the FIF threshold to pension transfers. |
| CF 3 formula method rule | Requires that the interest is not a low-value FIF superannuation interest. | If the interest is low-value, the formula method is blocked. |
| Section CQ 5 | Sets when FIF income arises. | This contains the current $50,000 FIF de minimis threshold. |
| Section DN 6 | Sets when FIF loss arises. | This mirrors the FIF threshold for losses. |
| Section EX 68 | Measures cost for the FIF threshold. | The test is cost-based, not simply based on current market value. |
The formula method does not simply contain its own standalone $50,000 threshold.
Instead, it is connected to the FIF threshold through the low-value FIF superannuation interest rules.
That is why changing the FIF threshold affects UK pension transfers to New Zealand.
The test is not pension by pension
The FIF threshold is generally based on the person’s total cost of all attributing FIF interests, not simply one overseas scheme in isolation.
That means you may need to consider:
- the relevant foreign pension interest;
- any other FIF superannuation interests;
- other attributing FIF interests they hold.
This matters because if you have multiple overseas interests may be over the current $50,000 threshold, but below a proposed $100,000 threshold.
Who could be affected?
This issue may matter where you:
- are considering a UK pension transfer to New Zealand;
- have a foreign defined contribution pension;
- have a pension interest that is a FIF superannuation interest;
- have total attributing FIF interests between $50,000 and $100,000;
- may otherwise have qualified for the formula method;
- have had low, flat, or negative pension growth.
It may be especially important where the pension has fallen in value, because the schedule method may still create taxable income even though the pension has not grown.
Who is unlikely to be affected?
This issue will not affect every transfer.
It may not matter where:
- the pension is not a FIF superannuation interest;
- you are clearly above the proposed $100,000 threshold;
- the pension is a defined benefit or final salary pension, where the formula method is already unavailable;
- the schedule method would be used regardless;
- your facts mean the low-value FIF rule is not relevant.
The key point is not that all UK pension transfers will lose the formula method.
The key point is that some people could lose it, and that outcome may not be intended.
Why the drafting matters
The proposed FIF threshold change appears to be aimed at reducing compliance costs for smaller overseas investors.
That is sensible.
But a UK pension transfer is different from an annual FIF return on a small foreign share portfolio.
A pension transfer is often a once-only retirement decision. The tax calculation can have a significant impact.
If the threshold is changed from $50,000 to $100,000 without a specific foreign superannuation carve-out, the formula method may become unavailable in more cases.
That could force some taxpayers to use the schedule method, even where the formula method would better reflect the actual outcome.
The legislation should make the intended result clear.
If Parliament intends the new $100,000 threshold to also apply to low-value FIF superannuation interests, that should be stated clearly.
If not, section CF 3 should be amended so the formula method is not unintentionally restricted.
Practical takeaway
Before transferring a UK pension to New Zealand, check whether the schedule method or formula method applies.
The difference can be material.
This is especially true where:
- the pension has fallen in value;
- the transfer value is between $50,000 and $100,000;
- the person has other FIF interests;
- the person has been New Zealand tax resident for several years;
- poor investment performance means the schedule method may overstate the real economic gain.
Related QROPSNZ guides
- UK pension transfer to New Zealand tax rules
- Formula method for UK pension transfers
- Schedule method for UK pension transfers
- QROPS transfer process
- Pension transfer traps and risks
- Types of New Zealand QROPS
External references
- Inland Revenue: Budget 2026 FIF changes information sheet
- Income Tax Act 2007
- Income Tax Act 2007, section CF 3
- IRD: Foreign super and the formula method
- IRD Tax Technical: Taxation of foreign superannuation
- IRD Tax Technical: FIF de minimis threshold
QROPSNZ view
The proposed FIF threshold increase may be positive for ordinary overseas investors.
But for UK pension transfers to New Zealand, the drafting needs care.
If the change flows through to the low-value FIF superannuation interest rules, some people may lose access to the formula method.
That could mean paying tax under the schedule method on a pension that has made no real gain, or has even fallen in value.
Anyone planning a UK pension transfer should review the position before transferring, especially while the proposed legislation is still developing.
Contact QROPSNZ to review your UK pension transfer position before you transfer.
General information only. This article is not tax advice. The tax treatment of a UK pension transfer depends on the individual’s circumstances, the type of pension, the timing of New Zealand tax residence, exchange rates, and the final wording of the legislation.
