If you are moving to Australia, or have recently moved there, we understand that taxation may not be high on your list of priorities.
However, it’s not a financial issue you should overlook as tax repayments can arise when you depart the UK, and the tax system in Australia can give rise to some welcome boosts to your tax cashflow after the end of each tax year.
We asked our tax planning arm, bdhTax to produce this special guest article that highlights some of the key taxation issues you need to be aware of if you are making the move to Australia.
In this article, they have highlighted four important points that could affect your tax position if you move from the UK to Australia.
1. Your residency status is crucial when it comes to your tax position
The main factor that determines your liability to tax in both the UK and Australia is your tax residency.
The general rule is that you cease to be a tax resident of the UK when you depart to live in Australia. You become a tax resident in Australia when you arrive there to live. So, the tax year in each country is split into a period of residence, and non-residence.
When you are not resident in the UK, only certain types of income with a UK source are taxable, most notably rental income from a UK-based property if you own and let it when you move to Australia.
If you rent out a UK property when you move to Australia you should enrol in the Non-Resident Landlord (NRL) scheme.
This will ensure that you receive the rental income without tax being deducted, which improves the cashflow from your rental property.
As a result of entering into the NRL scheme you will be required to submit annual self-assessment tax returns to HMRC.
Tax returns are to be submitted electronically by 31 January following the end of the applicable tax year. You can submit paper tax returns with an earlier lodgement date of 31 October following the end of the tax year.
If you are not submitting tax returns under self-assessment and you worked in a salaried employment during the tax year in which you are moving to Australia, you can submit a form P85 to HMRC.
This should generate a welcome tax repayment, as the PAYE system usually anticipates that you will be earning at the same rate throughout the tax year.
Even though the UK tax year is usually split in the year of a move to Australia, you are entitled to the Personal Allowance for the full year, plus the full basic-rate tax band.
So, you may get a tax repayment on leaving the UK!
2. Understanding the tax implications of your residency in Australia
If you are moving to Australia as the holder of a permanent residency visa, your worldwide income is taxable in Australia from the time you arrive.
However, if you have a temporary residency visa, your foreign income and capital gains on the disposal of most investments are not taxable in Australia.
Such applicable visas include:
- An employer-sponsored subclass (482)
- A provisional State-nominated subclass (491)
- A subclass working holiday visa (417).
Being in Australia with such a visa can put you in a “tax sweet-spot” in which there is little or no tax to pay in the UK on income from, say, a rental property or dividends from a UK limited company, and no tax to pay in Australia.
Where income is taxable in both countries, the double-taxation agreement between the UK and Australia means that tax paid in the UK on income that is also taxable in Australia can be claimed on your Australian tax return as a “foreign income tax offset”.
3. Submitting your Australian tax return
As you have read above, if you move to Australia you will be required to submit a UK self-assessment tax return, if you:
- Are renting out a property in the UK
- Are a director of a UK limited company
- Have a higher level of income.
By contrast, if you are resident in Australia most individuals are required to submit a personal tax return each year.
The tax year in Australia ends on 30 June, but if you do not appoint a “registered tax agent” you have until 31 October following the end of the tax year to submit your return.
If you appoint a registered tax agent by 31 October following the end of the tax year, it is usual for you to have much longer to file the tax return – usually until 15 May.
This can provide a tax cashflow advantage if you have tax to pay, as the due date for paying any balance of tax to the Australian Taxation Office (ATO) is also pushed back if you submit your personal tax return using a tax agent and submit close to the deferred date for lodgement.
You should note that if your only source of income in Australia is a salary, the Pay As You Go (PAYG) withholding system will usually over-tax you.
This means there will be an incentive to submit your tax return soon after the end of the tax year to secure any tax repayment you may be due, which will usually be paid directly into your bank account within a week of the tax return being submitted.
4. Claiming tax deductions in your Australian tax return
You should be aware that claiming tax deductions to reduce your taxable income is much more common in Australia than in the UK.
While the ATO makes it known that many claim tax deductions to which they are not entitled, it is nevertheless usually the case that tax deductions for rental properties are more generous than in the UK.
For example:
- Mortgage interest is fully deductible in Australia, while in the UK tax relief is limited to the basic rate of tax.
- Depreciation deductions are available for fixtures in a let property
- A capital works deduction is also available for properties that are let and were built after the early 1990s.
Note also that the fee you pay to a registered tax agent can be claimed as a tax deduction.
You can also claim against your personal contributions to superannuation, up to a cap each tax year, but with an ability to bring forward any unused amounts from prior years if you want to make a more significant one-off personal super contribution.
So, it is important to be aware of what you can claim, and what will put you the wrong side of the tax deduction line.
We can help you with all your tax arrangements when you move to Australia
If you think you will need help with your tax arrangements when you move to Australia, or you have recently moved and need advice, bdhTax will be delighted to help.
We are registered tax agents on the Australian government website and you can check our status there.
We have UK-qualified tax accountants and tax managers in our team with significant tax experience in both countries.
Our fees are quoted in advance whenever possible.
Get in touch
You can find out more about bdhTax on their website and you can get in touch with us to discuss any of the issues you have read about in this article.
Please note
This article is for information only. Please do not solely rely on anything you have read in this article and ensure that you conduct your own research to ensure any actions you may take are suitable for your circumstances.
All contents are based on our understanding of ATO and HMRC legislation, which is subject to change.
