On 13 April we held the latest in our ongoing series of client webinars. The subject of this latest webinar was “living the cross-border lifestyle”.
We know that the idea of living your retirement years in two different countries is the dream of many. But there are a series of challenges anyone planning such a life must address before it can become a reality.
We partnered with the Britain Australia Society to look at the issues and challenges.
This article gives you a high-level overview of what we covered. You’ll find out more on each issue when you watch the webinar, including detailed expert analysis and examples.
1. Tax planning issues
We devoted the first section of the webinar to taxation issues. This was run by Alan Collett, who is head of bdhTax, our specialist taxation subsidiary.
Alan has extensive experience of advising clients on the different tax regimes in Australia and the UK, and the best way to plan their financial affairs to avoid unnecessary tax charges.
He gave a detailed explanation of “residency” and “domicile”, and how HMRC and the Australian Tax Office (ATO) view and assess these.
He stressed four key points when it comes to residency and how it affects how income is considered for taxation purposes:
- Review your residency when you depart from one country and arrive in another
- Understand what different jurisdictions tax income
- Time departure to coincide with the end of the tax year if possible
- Take professional advice.
The overriding messages Alan stressed were not to leave planning too late and to seek advice as far before your departure as possible.
2. Planning your income in retirement
We stressed how important it is to have a plan for your retirement in place.
You can change this as your circumstances change, but the key aim should be to have at least an outline of a plan that covers the following points:
- When do you want to retire
- Where do you want to spend your retirement
- Once you have retired, what do you intend to do
- How long will your money need to last?
3. Cashflow planning
No one can accurately predict the future but, by using cashflow planning software, we can help you understand how your financial position will look in the future.
We can also model some “what if?” scenarios to help your planning process, incorporating factors such as inflation and stock market performance.
This kind of stress testing can help you understand how robust your finances are, and what changes you might need to consider making.
4. Strategies for your pension planning
The UK and Australia have different tax regimes when it comes to saving for your retirement.
In simple terms, you get tax relief as money goes in when you pay into a UK pension, and don’t pay tax when you take money out of your super in Australia.
If you’re moving from the UK to Australia, you can take advantage of that and get the best of both worlds.
The move from Australia to the UK is less straightforward, but there are ways to take your super and provide a tax-efficient income in the UK.
Our key message was that careful planning is required to avoid expensive mistakes.
5. Considering all your sources of retirement income
While pensions will likely form the bulk of your retirement income, you should have a flexible income strategy, using money from different sources to provide income.
The overarching aim should be to provide yourself with an income as tax-efficiently as possible.
You are eligible for the UK State Pension if you’re living in Australia but will not benefit from any inflation-linked increases.
The Australian State Pension is means-tested. The richer you are, the less likely you are to receive anything.
6. Use of investment tax wrappers
We’ve already considered your pension arrangements, but as well as pension funds it is likely that you could have substantial other financial assets split between the UK and Australia.
Having financial assets in two different tax jurisdictions can get messy. It’s therefore crucial that you plan carefully.
We consider professional advice to be essential to avoid you making mistakes and being subject to an unwelcome tax demand.
So, planning and financial advice are both crucial to ensure you maximise the tax advantages and avoid any pitfalls that could end up costing you money.
7. Ensuring your affairs are in order when you die
If you die intestate without a valid will in place, executors will follow a step-by-step approach when it comes to distributing your assets.
Although both countries do recognise the terms of wills drawn up in the other, it is often advisable to have a UK will for your UK assets, and an Australian will for assets there.
Power of Attorney (POA) deeds are not valid outside the country of origin. You should therefore have separate POAs for the UK and Australia.
8. The value of advice
Summing up this part of the webinar, we confirmed that a dual, cross-border lifestyle can be rewarding to live but challenging to set up.
We strongly believe that professional advice is essential. It means you’ll have a detailed plan in place that should help you avoid any potential pitfalls.
Advice gives you confidence that what you’re planning to do will work.
Once the presentations had finished, we then spent some time answering questions that the webinar attendees had submitted.
You’ll hear our detailed answers on the webinar but, for your information, here’s an overview of some of the issues covered:
The best way to transfer your UK pension to an Australian super is by setting up a qualifying recognised overseas pension scheme (QROPS) self-managed super fund (SMSF) to receive the fund. There is only one publicly accessible QROPS in Australia, and this will not have the range of investment choice that an SMSF will provide.
If you’re moving from Australia to the UK, you can’t transfer your accrued super. However, once you reach 60 you can take your super as a tax-free lump sum and then move it to the UK, subject to various conditions. There are a variety of tax wrappers that you can use to create a well-diversified portfolio to provide income.
While it is possible to start contributions to a super while you’re living in the UK with earnings in Australia, the tax advantages of contribution to UK pensions mean that we would usually recommend prioritising them, until you actually move.
Taxation and other financial issues
Australian authorities do not recognise UK POAs, nor vice-versa. You should therefore have separate POAs for both.
If you’re moving from the UK to Australia, you’ll need to notify HMRC. The usual way to do this is through your annual self-assessment. If you do not complete self-assessment forms, then you should use form P85.
The cost of advice
When it comes to working with bdhSterling, there is no minimum fund required for us to advise you. We offer a free no-obligation meeting to discuss your financial affairs. We will then produce a report, detailing where we think we can add value to your financial planning process. This will include a quote for our services.
When it comes to deciding between the UK and Australia for where you want to retire, the key consideration should be what you want to do, rather than any particular advantageous tax position.
Get in touch
We hope you find the contents of the webinar useful and informative.
Get in touch if you’ve got any comments or queries about the issues we’ve raised.