A key part of your financial planning when you move from the UK to live in Australia is dealing with your accumulated financial assets.
This is likely to include investments in an Individual Savings Account (ISA) or a General Investment Account (GIA).
If you’re unsure of your long-term plans, you may decide to leave them in place to accrue investment value and to be accessed if and when you return to the UK. Alternatively, even if you’re not planning to return, you may decide to only draw from them if you need the money for a specific purpose, or to boost your retirement savings.
However, leaving the money invested could create tax problems for you, and could result in an unwelcome tax demand from the Australian Tax Office (ATO).
Discover why this is the case and the steps you should take to avoid such a tax liability.
ISAs and GIAs are popular investment options
If you’re living in the UK, both ISAs and GIAs are effective ways to save and invest your money.
With your ISAs, you are not liable for UK Income Tax or Capital Gains Tax (CGT) on the investment growth or the income you take from your ISA. Furthermore, both you and your spouse or partner can invest £20,000 each year into an ISA account, so it can be easy to build up a substantial fund relatively quickly.
Although GIAs are not as tax-efficient as ISAs, they enable you to put money into a wide range of investment options. You can currently take £6,000 profit each year from your investments without being liable for CGT, although this is reducing to £3,000 from April 2024.
Given their tax efficiency and the opportunities they offer to investors, it’s likely that you will have invested money in one or both options while in the UK.
As an Australian resident, you’re liable for tax on your worldwide income
If you are an Australian resident for tax purposes, you must declare income you earn anywhere in the world in your Australian tax return.
As the holder of a certain type of temporary visa, you may not be liable for tax on overseas investment income, but as soon as you become a permanent resident, you’ll be taxed on all your income – including what you accrue from your investments.
If you’ve made the decision to leave your ISA and GIA untouched when you moved to Australia, you may be tempted to think that as you aren’t actually taking income and this isn’t an issue for you. However, this may not be the case.
You don’t need to draw income from your investments to incur a tax charge
If you are a permanent Australian resident, you will need to declare ISAs and GIAs on your annual tax submission to the ATO as though they are Australian investments.
There are then a series of taxable events on which you’ll be liable for Income Tax. As well as drawing money from your funds, this will also include:
- Encashing investments as part of any regular rebalancing of your holdings
- The automatic sale of investments to cover your monthly administration charges
- The payment of income from dividend declarations.
A quick glance at one of your investment statements will tell you how many routine actions there are. If you consider the implications of all of them being liable to a tax charge, you’ll see how quickly you could build up a tax debt without realising it.
For example, in one recent case we’ve become involved in, a client had over a thousand transactions – including rebalances and charges – that needed to be retrospectively declared to the ATO.
As any tax due is calculated on the difference between the base cost when you purchased the asset and when assets are sold, this has resulted in a complicated assessment process and the re-submission of several years of tax returns to the ATO.
Any tax you’re liable for will be charged at your marginal rate
The tax advantages provided by ISAs and GIAs do not apply once you become a permanent Australian resident.
This will mean that all the taxable events that occur on your UK-based investments will be deemed to be income and, as a result, you’ll pay tax on them at your marginal rate of tax.
The tax will be charged on any profit you have made based on the increase in value between the date you became an Australian resident and the date of the sale of the investment.
You may also be affected by an unfavourable exchange rate
As ISA or GIA investments, the assets on which your tax liability will accrue are under UK jurisdiction.
However, because any tax you’re liable for is payable in Australia, any gain must be measured in Australian dollars.
This could mean that you may be affected by exchange rate movements between the time you are deemed to have acquired and sold the asset. If you do not convert the sale proceeds into Australian dollars you may need to pay tax on unrealised currency gains.
You need to act now if you think you may be affected
If you are an Australian resident for tax purposes and have existing investments in either ISAs or a GIA, we would strongly recommend that you seek expert advice.
Likewise, if you’re planning to move or return to Australia in the near future and have ISA and GIA investments or are already in Australia but on a temporary visa, you should be looking to take steps now to manage these investments. Considerations should include potential disposal, which will help ensure you minimise any tax charge going forward.
Even if you aren’t sure if you’re liable for tax on your retained UK investments, it’s worth speaking to an expert for reassurance. They may be able to help you avoid an unwelcome tax charge at some time in the future.
Get in touch
If you have any queries regarding your investment planning, particularly around issues you’ve read about in this article, then please get in touch with us.
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 ATO and HMRC legislation, which is subject to change.