10 key financial tips if you’re planning on returning to Australia

Category: News

As an expat living here in the UK, it’s very possible that you’re planning on returning to Australia at some stage.

Having previously moved from Australia to the UK, you will know from experience that moving countries can be a significant transition. You’ll recall that the logistics of physically moving are time-consuming, to the extent that thoughts about your finances become secondary.

This is unfortunate because, if managed carefully, this process can be very financially beneficial. However, it’s equally easy to make mistakes that can turn out to be very costly.

So, here are ten things to consider if you’re planning to move back to Australia at some stage in the future.

1. Transferring your UK pension to Australia

There are big opportunities when it comes to transferring any accrued UK pension funds to Australia. This is because of the different tax regimes applying to pension assets.

In Australia, you pay tax in superannuation funds when you make contributions. You are also taxed on investment growth, but taking the super out as income is tax-free.

In contrast, in the UK, you don’t pay tax on contributions – in fact, there are tax incentives on all contributions paid, and investment growth is not taxed. However, you’ll pay tax on all but 25% of the fund on the way out.

So, transferring your UK pension into a super can create a very advantageous tax position. You can do this from age 55 (increasing to age 57 in 2028). It is then accessible at 60 or 65 depending on whether you are still working.

2. Reducing your currency exchange costs

While your pension or other investments are held in the UK, it is possible to place them in investment portfolios denominated in Australian Dollars (AUD).

The switch can take place at an exchange rate that is likely to be favourable, which can help reduce currency risk.

When transferring your money, it is advisable to use a currency trading company as the rates offered are typically far cheaper than a bank-to-bank transfer. You can also use forward contracts to lock in a transfer rate up to a year in advance to help planning and create certainty.

3. Dealing with your property

Deciding when, or if, to sell your UK property won’t be straightforward.

It will depend on a series of different issues such as Capital Gains Tax (CGT), the tax regime in each country, and your personal circumstances. You should get advice from a tax specialist before making any decision.

It’s possible that you’ll have a property to move back into in Australia. If you haven’t, then it’s advisable to wait until you’re back in Australia before buying a property – purchasing as an expat will mean you’ll be classed as a foreign investor which is more restrictive and expensive for property.

You could decide to retain your UK property and derive a rental income from it. There will be tax implications of doing this and, again, we would strongly recommend you speak to a tax expert before making any decision.

4. Managing taxation issues

Non-UK residents are not subject to Capital Gains Tax (CGT). This means that you are able to sell any UK assets once you’ve given up your UK tax residency status and not pay CGT.

However, once you’re back in Australia, any capital gains on assets in the UK will be assessable to Australian tax. Timing is therefore crucial.

For example, UK ISAs will be subject to Australian CGT and so it may be best to cash them in before leaving the UK, then reinvest in Australian assets once you’re an Australian tax resident.

Taxation is probably the single issue where we have seen simple mistakes made that prove costly in terms of tax bills. So, advice from a tax expert is essential. With careful planning, you can avoid such mistakes.

5. Minimising Inheritance Tax (IHT)

Any assets remaining in the UK will be subject to IHT in the event of your death. Any assets remaining in the UK could be subject to IHT in the event of your death if the value of your estate is more than the current thresholds.

You should therefore consider this when deciding which assets, if any, to leave in the UK when you move back to Australia.

Note that pension assets are typically exempt from IHT.

6. Setting up wills and Powers of Attorney

Wills and Powers of Attorney are different in each country and may not apply to assets in other countries. You should therefore ensure you keep both up to date.

Once you are back in Australia, any of your assets that you have not willed to children or relatives who are still resident in the UK will be subject to CGT on transfer.

Spouses or relatives are not automatically given Power of Attorney over your assets in the UK, so this must be specified, or a third party will be assigned.

7. Checking your life cover and income protection

 You should check to see if any life insurance or income protection policies you have taken out in the UK will still be valid if you move to Australia. If they are not, you’ll need to replace them, but make sure you don’t cancel any old policies until new ones are in force.

Even if some UK based policies will pay out, it’s worth seeing if there are better alternatives available in the UK.

8. Receiving your UK State Pension in Australia

It takes a minimum of 10 years’ National Insurance contributions (NICs) to be eligible for a UK State Pension. If you are eligible this will be payable to you, even if you’re back in Australia.

It is therefore worth checking your eligibility, and maybe paying additional voluntary NICs to achieve this. Note, however, that you won’t receive the annual automatic State Pension increase that would apply if you were still resident in the UK.

9. Planning the optimum time to move

It’s possible that you might not have the luxury of deciding exactly when to return to Australia, especially if the move is dependent on a new job opportunity, for example.

However, if you can choose exactly when to move, there are certain tax advantages and other considerations that could have a bearing on your timing.

Once again, you should consult with a tax specialist before making your decision. Poor choices at this time can be very costly if you end up trapped in the worst tax situation in each country.

10. Financial advice is essential

As you will have seen, all the issues we raise here are financial, and we can’t overstate the importance of getting professional advice.

You’ll recall that when you originally moved to the UK, the financial arrangements were time consuming and complicated. We may even have helped you manage that process. It’s now likely that you’ll have financial assets in both the UK and Australia, which adds an extra layer of complexity and increases the chances of a mistake being costly.

So, when you first start thinking about the possibility of moving back to Australia, please get in touch with us.