As a cross-border financial advisory firm, the Double Taxation Agreement (DTA) between the UK and Australia underpins much of the advice we give our clients.
This tax treaty affects your finances if you have assets, income, or pensions in both countries, as well as if you are moving between the two.
So, in this article, read about how the DTA affects you if you’re a British expat living in Australia with earnings in the UK.
You could be charged tax twice on the same income
According to both UK and Australian tax regulations, you are subject to taxation on your worldwide income in the country where you are considered to be tax resident.
By contrast, both jurisdictions generally only tax non-residents on the income derived within their respective territories.
In practice, this means that if you are an Australian tax resident with income in the UK, this income will be liable for taxation in Australia, because it is your country of residence.
However, it will also be liable for UK tax as the country where the income was earned. This means you could be liable for tax twice on the same income.
The DTA is designed to address that.
The Double Taxation Agreement allows you to claim back overpaid tax
Originally agreed in 1967 and fully updated in 2003, the DTA between the UK and Australia streamlines and formalises the exchange of tax information.
It allocates taxing rights between the two countries and provides the necessary structure for tax relief to prevent you from being charged twice on the same income.
It also sets out the types of income that are taxable in each of the two countries, in the event that you have financial or residential interests in both.
This means that if you’re a resident of one country but pay tax on income in the other, your home country will generally give you a credit for the foreign tax paid.
As well as preventing you from being taxed twice, the DTA also establishes domestic guidelines for resolving dual tax claims and helps prevent deliberate tax evasion.
How you can claim back tax on UK income if you are an Australian resident
A good example of how the DTA works relates to pension income in the UK if you are living in Australia. It’s a scenario that we often come across as cross-border financial planners with clients in both countries and moving between the two.
HMRC will tax this as UK income. Indeed, most UK pension providers will pay this net of tax.
As you are obliged to declare your worldwide earnings on your Australian tax return, the ATO will also usually tax this as income.
However, because of the DTA, you can claim a foreign income tax offset (FITO) for UK tax paid on that pension income through your Australian tax filing.
The same process applies to other UK earnings, such as rental income derived from property you own. In this case, your letting agent is obliged to deduct basic-rate Income Tax before paying you the income.
You can claim a credit for foreign tax you’ve already paid by applying the foreign income tax offset in your Australian tax return, which reduces your Australian tax liability.
We can help you with your tax arrangements
Clearly, the examples we have set out here are straightforward circumstances. In reality, many cases are far more complex.
Because of this, we would recommend you get expert advice from a cross-border tax planner, such as bdhTax, our sister company.
They have UK-qualified tax accountants and managers with significant experience in both countries.
They can help ensure you aren’t overpaying tax and maximise any reliefs available.
When it comes to dealing with both HMRC and the ATO, mistakes can prove costly and, in many cases, irreversible. So, having an expert working for you can save you money and give you valuable peace of mind.
Get in touch
At bdhSterling, we specialise in helping clients navigate the complexities of international financial planning.
If you want to discuss any of the taxation issues you’ve read about in this article, 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, it does not take into account your personal objectives, financial situation, or needs.
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.