How to retire to the Australian sun

Financial planning is just as important for a successful move as finding your favourite beach, reports Alexa Phillips

With its hot weather, sandy beaches and high chances of a barbecue, Australia has long been a favourite for Britons searching for a sunny retirement.

The tax advantages of living Down Under only add to the appeal, but good financial planning is essential if you want to make the most of them. Otherwise, you could end up with some unexpected tax bills.

Here, Telegraph Money looks at what you need to know if you want to join the more than 225,000 British pensioners already living there.

WHAT KIND OF VISA WILL I NEED TO MOVE TO AUSTRALIA?

There are three common routes that people use to become permanent residents of Australia: a “family-stream” visa, a “work-stream” visa and a business or investor-stream visa.

The family-stream visa is for those with immediate family living in Australia, who can act as a sponsor. There are several different types, including age- dependent resident visa, carer’s visa, remaining relative visa and parent visa. However, wait times and charges for some of these options can be pretty extreme. Applicants may also have to prove they have enough in savings or retirement income to provide for themselves.

Work-stream visas will be less applicable to those who have already retired, or who aren’t planning to work in Australia. To qualify, you either need to be sponsored by an Australian employer, or have skills that are valued in the country. It’s also possible to get a business or investor-stream visa if you are deemed to be a businessperson who can drive innovation and strengthen the Australian economy. There are three different visa streams, but two have a cut- off age of 55. The “significant investor stream”, with no age restriction, requires an investment of A$ 5m (£ 2.6m). For a shorter- term stay – perhaps while you are scoping out somewhere to live, or deciding whether Australia is somewhere you want to retire – you can apply for a tourist visa of up to 12 months, at a cost of A$190.

WHAT WILL HAPPEN TO YOUR PENSION?

Australia can be a “very lucrative place to retire” from a pension perspective, said Philip Teague, executive director at Cross Border Financial Planning – but the rules are complicated and you will need to interact with the country’s “superannuation scheme”.

If you have a UK pension you can transfer it to Australia using a “qualifying recognised overseas pension scheme”, known as Qrops – as long as it complies with regulations in both countries. You can transfer a defined benefit (DB) pension scheme, a defined contribution ( DC) pension, an occupational pension scheme and a small self-administered scheme (SSAS).

But there are limits on how much you can move, and when. There is a transfer limit currently set at A$110,000 a year, and those moving their pension must be at least 55 years old. Australian pensions are tax-free and the only tax owed could be on the investment growth of a pension pot. But you might pay tax on what you transfer.

“There is some tax potentially to pay on the transfer over to Australia, but it’s going to typically be a lot less than what you would typically be paying if you left the money in the UK and pay tax in the UK,” Teague said.

If you are moving to Australia, Teague said a “superannuation scheme”, commonly known as a “super”, would have to be created for you, or you can select one of the very few schemes that are already registered with HMRC.

Supers are a pension fund that all Australian employers must contribute to for each of their employees.

There will be taxes to pay based on the growth of the UK pension, from the time the individual became resident in Australia to the time that the money was moved over. Peter Ferrigno, director of tax services at Henley & Partners, says: “The Australian pension system is very different to the UK, and pensions from superannuation schemes are tax-free, but this doesn’t necessarily apply to UK pensions.”

But not all pensions can be transferred; this includes the state pension, annuities (in most cases) and unfunded public sector pensions.

Also while you live in Australia your state pension payments will not increase each year. In Britain, pension payments increase in line with the “triple lock”, but expats in Australia will have payments frozen.

‘There is some tax potentially to pay on the transfer over to Australia, but it’s typically a lot less than the UK’

WHAT KIND OF TAXES WILL YOU HAVE TO PAY?

Investments such as interest, dividends and capital gains are all taxed as regular income in Australia, according to Henley & Partners.

Tax rates are similar to or slightly lower than in Britain. The tax-free personal allowance threshold is slightly lower than in Britain ( A$ 18,200, or £ 9,400), but you’ll pay a lower rate of tax at 19pc. A higher rate of 32.5pc kicks in at A$45,000-A$120,000, you pay 37pc up to A$ 180,000 and 45pc above that.

One thing to bear in mind is Isa income is not recognised as being taxfree, meaning you can be charged CGT on any growth. If you are not planning to return home, it’s worth considering weighing up whether you would be better off selling the investments before you leave British shores.