If you are moving to Australia from the UK, or have just recently moved, how you invest your assets could have an important bearing on your future prosperity.
This is especially the case if your ultimate intention is to spend your retirement in Australia, but it is still an important issue to bear in mind even if you are planning to return to the UK.
There are a whole range of factors you will need to consider when it comes to new investments. And you’ll also need to think about what to do with the invested assets you have accrued in the UK.
Here are six of the most important issues you should have in mind when you are putting together your new investment strategy.
1. Have a plan in place for moving your assets from the UK
The first important decision you will need to make will be what to do with your existing UK investments and other savings.
The key issue that will dictate your decision-making will be how long you intend to stay in Australia. For example, if you are planning to return to the UK within five years, you may find it prudent not to sell and reinvest any existing invested assets.
Additionally, you should also bear in mind that some assets can’t be moved between financial authorities, and there are two different tax regimes to consider.
For example, if you’re already resident in Australia, disposing of your UK assets could result in you paying Capital Gains Tax (CGT) in Australia.
In view of this, we would strongly recommend you get expert advice when it comes to the management of your UK and Australian assets and investments, as mistakes could prove costly.
2. Confirm your attitude to risk
It’s always important to ensure you are comfortable with the level of risk, and potential for short-term loss, associated with investments you make.
It’s also worth considering any changes in your financial circumstances after moving from the UK to Australia. The investment strategy you followed in the UK may not necessarily be appropriate in another country.
For example, it’s a good idea to review your new household budget to see if you still have the same amount of disposable income to support the level of regular investments you may have been making in the UK.
Additionally, if you are planning to retire in Australia your investment strategy for your super fund could involve you being able to accept more risk in return for greater long-term growth potential.
3. Make sure you maintain a well-diversified portfolio
Regardless of where you are living, ensuring you diversify your investments is of the utmost importance.
One of the important rules when it comes to investing is to ensure that you have a balanced portfolio and not to put all your eggs in one basket – regardless of where you are living.
You’ll find that there are as wide a range of investment options in Australia as in the UK, so you should have no problem in putting together a portfolio designed to meet your needs.
Spreading your investments across different market sectors and geographic regions can help to reduce the risk of you losing money in the event of a market upheaval.
4. Understand the differences in the way tax is applied on pension contributions in Australia
Unlike in the UK where pension contributions are incentivised with tax relief, payments into your super are taxed, (although at largely lower tax rates than Income Tax).
However, you can benefit from a concessionary tax rate of just 15% on all your contributions up to AUD $30,000 in each tax year.
The big advantage of a super fund over a UK pension arrangement is that all withdrawals can be made free of tax. Given this, and the concessionary tax rate, it makes sense to maximise your super contributions as far as possible for long-term investment.
You can start drawing from your super fund from age 60 by means of a Transition to Retirement arrangement (TTR) but you cannot fully access your fund until age 65 unless you retire. This means you should be looking elsewhere for shorter-term investment opportunities.
5. Realise there’s no equivalent of a UK ISA in Australia
When you start researching investment options in Australia you will find there is very little difference in the choices available to you.
The key exception, however, is that there is no Australian equivalent of an ISA. Apart from that, the type of investments you can buy are similar to those in the UK include:
- Investment bonds
- Stocks and shares
- Funds run by Investment Managers
- Exchange-Traded Funds (ETFs).
As you have already read, two of the most important factors you need to keep in mind are how much risk you are happy to accept, and how long you’re looking to invest for.
Remember, the longer you can keep your money invested the better. We would recommend a time horizon of five years or more for any equity-based investments, as longer timescales can help reduce the impact of short-term market volatility.
6. Know how tax charges differ on investments
When it comes to comparing the different tax regimes affecting investments in the UK and Australia there are three important points you should bear in mind:
- Unlike in the UK, Capital Gains Tax (CGT) is charged on your investment profits at the same rate as Income Tax.
- Losses can be carried forward from previous tax years and used to offset the amount of tax payable on future gains.
- If you’ve held your investment asset for 12 months or more, only half the gain will be added to your taxable income and taxed at your marginal tax rate.
As is the case in the UK, you can transfer shares between yourself and your partner. This can make it beneficial if one of you has a higher marginal tax rate.
The amount of tax you pay is assessed on an annual basis when you file your tax return with the Australian Taxation Office (ATO).
7. Take steps to mitigate currency risk
If you hold investments in the UK it’s possible to place them in investment portfolios denominated in Australian Dollars (AUD).
As well as having all your investments in the same currency, you can also potentially benefit from a favourable exchange rate.
By doing this you could help reduce currency risk and mitigate the effect of a sudden fluctuation in the exchange rate between sterling and AUD affecting the value of your investments.
Get in touch
As you will appreciate from reading about the issues here, managing your investment portfolio when you move from the UK to Australia can be a complicated process. Because of this we would strongly recommend you get expert advice, as any mistakes could result in a loss of value to your portfolio.
If you have any queries regarding your financial planning and your investment strategy, please get in touch with us.
Please note
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
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 HMRC and ATO legislation, which is subject to change.
