If you’re a Brit already living in Australia, how you invest your money could have a big bearing on your future wealth. This is particularly true if you’re planning on staying in Australia once you’ve stopped work and start taking income from your pension fund.
There are many similarities, and some key differences, between how you can invest your money in the UK and Australia. Understanding these differences is important to help you make the most of tax-efficient options, and to avoid mistakes that can leave you with an unnecessary tax bill.
Here are 10 tips for investing money in Australia.
1. Your super will be your most tax-efficient investment vehicle
The most tax-efficient savings and investment vehicles are super funds.
Contributions to super funds are taxed but, at retirement, you can access the fund free of tax. This is the reverse of the situation in the UK where contributions are incentivised with tax relief, but you’ll pay tax on income you take out.
You also get a concessionary tax rate of just 15% on your and your employer’s contributions to your super up to $27,500 each year.
Clearly, the restrictions on when you can start taking money out of your super – currently age 65 – will mean that you’ll be looking for alternative investment options for shorter-term investments.
2. Other, more flexible, ways to invest
If you’re used to saving and investing money from your time in the UK, the first thing to say is that there’s very little difference in how you can go about this when you’re in Australia.
There are straightforward savings accounts, similar to the UK. As in the UK, it’s prudent to shop around for the best rate, including introductory rates.
Fixed-interest options can also provide better returns than standard rates, though you’ll be tying your money up for an extended period.
When it comes to investments the most straightforward way to invest is via an online investment platform. The type of investments you can trade are similar to the UK, including:
- Stocks and shares
- Investment bonds
- Exchange-Traded Funds (ETFs)
3. Taxation on investment profits
There are two key differences between the UK and Australia when it comes to taxation on investments.
- There is no direct equivalent of an ISA in Australia. This means that there’s no specific investment vehicle where profits are exempt from Capital Gains Tax (CGT) or Income Tax.
- There’s no specific rate of CGT on the profits you make when you sell investment assets. The profit you make will be the difference between purchase and sale price, less any applicable charges.
Profits from the disposal of investment assets are taxed in the same way as your income. You’ll pay tax at your marginal rate if you’ve held the shares for less than 12 months, or at 50% of your marginal rate if you’ve held them for longer than 12 months.
If you hold shares jointly, then the tax will be split between yourself and the other interested party.
The amount of tax you pay is assessed on an annual basis when you file your tax return with the Australian Taxation Office (ATO). You can use losses to offset the tax payable on gains, and you can carry forward losses to future years.
4. Moving your UK assets and investments to Australia
If you’re planning to stay in Australia for an extended period, it’s likely that you’ll want to transfer some, or all, of your UK assets to Australia.
It’s important that you manage the movement and disposal of assets carefully as there are two different tax regimes to consider. If you make a wrong decision regarding the timing of the sale of a particular asset, you may well end up with an unexpected tax bill – either from HM Revenue & Customs (HMRC) or the ATO – that you could potentially have avoided.
For example, if you’re already resident in Australia, disposal of UK assets will likely result in you paying CGT in Australia.
As with any financial decision, there are advantages and disadvantages to moving assets from the UK to Australia.
We’d strongly recommend you seek professional tax advice when considering the management of UK and Australian assets and investments.
5. Ensure you have an emergency fund set up
After setting up your super, but before starting to consider other investment options, you should make setting aside an emergency fund a priority.
As a rule of thumb, we’d suggest having around three to six months’ salary saved in a dedicated account.
Because you may need to access this at any time, you should keep this fund in an easy-access savings account, rather than invest it over an extended time frame.
6. Invest for the long term
As the old investment adage says, “it’s time in the market, not timing the market” that counts.
Having a clear understanding of what you’re investing for will give you a good idea of how much you need to invest, how long you need to invest, and what level of risk you will be comfortable with.
Investing for as long as possible can help reduce the impact of short-term market volatility.
If you and your partner are careful in managing how you draw income from your investments, you’ll also be able to minimise your tax liability in each financial year.
7. Find a level of investment risk you’re comfortable with
A key factor when it comes to investing is the amount of risk you’re prepared to accept to meet your financial goals.
Different investments carry different levels of risk and it’s always important to ensure you’re comfortable with the amount of risk you’re taking. You should also consider key criteria such as your timescale on a particular investment.
For example, your investment strategy for your super fund, with a potential timescale of more than 20 years, could involve accepting more risk in return for greater growth potential.
Over a shorter term, or when you get closer to your intended retirement date, you may want to consider a lower-risk strategy.
8. Diversification is crucial
One golden rule of investing, regardless of whether you’re in the UK or Australia, is to maintain a balanced portfolio and not to put all your eggs in one basket.
Once you’ve taken the decision to invest, you’ll find there are many different options when it comes to investing your money. These are usually referred to as “markets” or “sectors”.
Try to avoid having all investments in one particular sector. By diversifying your investments, you reduce the risk of losing money in the event of a certain market sector suffering from a sudden downturn.
9. Avoid home bias
Another key investment consideration is to avoid home bias.
Home bias is as prevalent in Australia as anywhere. It’s the inevitable effect of you feeling most comfortable with the names you recognise in the Australian economy, even when clear signs are telling you that diversifying your investment portfolio would be the most prudent, and lucrative step.
As the saying goes, “a rising tide lifts all boats”. However, even as markets react to pent-up demand finally being released post-lockdown in Australia – maybe as early as Spring 2022 – it could well be that markets elsewhere are performing better than your “home” market.
10. Income planning is a key part of your investment strategy
A key facet of how you invest your money, both into your super fund, and other investments, will be to ascertain the most tax-efficient way to take profit and income from your funds.
It’s therefore important to always bear in mind the timescales over which you’re investing.
If you’re a Brit investing in Australia, but with retained assets in the UK, bear in mind that Australia has a Double Taxation Agreement (DTA) with the UK, which ensures you don’t pay tax twice on the same income in two different countries.
So, you will only pay tax once on any assets you vest in the UK, as the amount of UK tax payable would be deducted from the tax you paid in Australia.
Get in touch
We have a wealth of experience when it comes to advising clients about their investments. We can also provide access to tax experts who can help you manage the transfer of assets between the UK and Australia effectively.
Get in touch to find out how we can help you.
