What could you do with your ISAs and other investments if you move to Australia?

Category: Australia & News

A key part of your financial planning arrangements if you move to Australia will be managing your accumulated UK-based assets.

It’s likely that the most substantial of these will be your property, and your accrued pension fund, or funds.

However, you may well also have money invested in an Individual Savings Account (ISA). 

In this article, you can read about some of the options available to you when you are considering what to do with your accrued ISA investments. 

Leaving your ISA invested could result in a tax charge

If you’re unsure of your long-term plans, you may decide to leave your ISA in place to accrue investment growth while you are overseas. You will also then have the security of knowing that there is a sum of money for you on your return to the UK. 

However, if you do decide to leave the money invested, you may be creating a taxation problem for yourself, even if you aren’t planning to draw any money from your ISA fund.

As a permanent Australian resident, you will be liable to pay tax at your marginal rate on all your worldwide income.

Importantly, this includes what you accrue from your UK-based investments, even if you aren’t taking income or drawing one-off sums. The tax-efficient terms on ISAs, where the growth on your savings or investments and any income you take are not subject to tax, do not apply if you are a permanent resident in Australia. 

As a result, any UK investment needs to be declared on your annual tax submission to the ATO in the same way as your Australian investment assets.

So, you need an effective strategy to manage your assets and minimise the tax you are liable for.

The importance of planning ahead

To help you appreciate the options available to you, consider this (fictitious) case study regarding Mr Jones.

He has been granted a permanent visa to live and work in Australia, and is planning to move in 2024. He has accrued £200,000 in an ISA. 

As a tax resident in Australia, the ATO will look to tax income and gains from his worldwide investments. This would include the investments held in his UK ISA, as the ATO does not recognise the tax benefits of an ISA wrapper. 

There are a range of options open to him around what he can do with the money. 

For example, he could put the money into an offshore bond, which would be tax-free in Australia on any withdrawals after 10 years, while accruing tax-free growth within the fund in the meantime. 

Alternatively, he could cash in his ISA before moving and hold the money in his bank account. This would give him a handy lump sum that he could use to cover the cost of emigrating and provide a financial cushion as he settles down into his new life. 

Make a tax-efficient pension contribution

One highly tax-efficient option Mr Jones could consider taking advantage of would be to maximise contributions to a UK pension. 

He would automatically have basic-rate tax relief of 20% added to his contribution and may also be able to claim higher rates of relief through his self-assessment tax return.

He could contribute up to the higher of £60,000 gross or 100% of his earnings in the 2023/24 tax year – although this may be lower if he has already flexibly accessed his pension, or his income exceeds certain thresholds. 

Not only that but – subject to his eligibility – he may also be able to “carry forward” unused relief from the previous three tax years. The threshold for this will be whatever the allowance was in those tax years, which was up to £40,000 or 100% of earnings when looking back from 2023/24.

At a later date, he may well be able to transfer his accrued UK pension fund to an Australian super, subject to eligibility. This can result in opening up the potential of tax effective strategies under the Australian Superannuation rules.

Advice is essential to help avoid mistakes and an unwelcome tax charge

The key if you’re moving to Australia is to obtain expert advice, pre-migration, to assess the options available to you when it comes to your UK assets.

Likewise, if you are already an Australian resident with retained UK investments, we would strongly recommend you seek expert advice.

If you’re planning to move in the near future, the sooner you start making arrangements for your finances, the better.

Having the correct plan in place could result in you avoiding an unnecessary tax charge, or making a financial mistake that could prove costly, and may be irrevocable.  

Get in touch

If you have any queries regarding your financial planning, 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.