Being made redundant in UK - emigrating to oz, tax on severance plus other payments

[poolprouk]

Hi there,

 

I've known that redundancy was coming here in the UK as my job is relocating to another part of the country, therefore i planned getting my spouse visa on this basis and it's all happening as planned.

 

However i'm confused as to tax liabilities on Severance (normally tax free in the uk) plus PILON and Annual leave pay (i'll get 24 days paid) which are normally taxable in the UK. My payment will fall just into the new tax year in the uk which complicates matters!!

 

My situation is this:-

 

Time with employer 6 years (2.5 weeks for each year of service as severance)

 

Notice period 6 months, will most likely be asked to work 2 months of this so will get 4 months PILON, + i will get paid for the full years leave allowance less any days taken ( i will have 24 left at time of leaving).

 

Given that i'm planning on emigrating to Australia in Late April i am aiming to agree a leaving date of 12 April. Therefore i will receive my severance + PILON + Leave payment in the 13/14 tax year.

 

Now it gets complicated.

 

PILON + Annual leave - Taxable - Given that i will be getting this in the new UK tax year and moving to Australia soon after payment i am not sure where my tax liability on this will be, here or in Australia? (I am hoping here as i would benefit from being taxed at a fairly low rate as this will be the sum total of my earnings in the uk for the 13/14 year.) the aussie tax year runs from July 1 to June 30 how does that impact things?

 

Severance- This will be tax free of course, however i am worried that the Australian tax man will try and claim a portion, i know there is a double tax agreement but will the Australian tax man treat my severance pay as the UK tax man would?

 

I should receive both payments mentioned above before i leave the UK and move to Australia (therefore before the date i become a resident of Australia for tax purposes.....i think....).

 

Any help would be useful. I am guessing i will need to seek professional advice.....

 

Many thanks for any help that might be offered.

 

Regards,

 

Murray

[northshorepom]

I think you are tax resident in the UK until the day you leave. You are not tax resident in Australia until you arrive. So monies paid in the UK prior to you leaving are not liable for Australian tax

 

So IMO you will get your severance tax-free and your PILON and leave payout will be subject to UK tax (and presumably paid net of PAYE to you in any case)

 

You will probably have to do a UK tax return at the end of 13/14 tax year which should mean you get much of the tax paid back.

 

 

HTH. But I am not an accountant. Some here are so will probably give you more accurate/reliable advice

[dmjg]

Seek professional advice, Alan Collett is on, he did our first swap over tax return.

 

In our case the taxman in the uk was interested in us until the day we left. We did a uk form of some sort (see hmrc website) saying we were immigrating and they gave us the extra tax back for that part year, about 300 quid. We then were asked to fill in a tax return (did it online) and got a tiny bill of 30 quid or so. Oh has to do a tax return each year at hmrc request, but as apartment makes less than the personal limit, there is never any tax to be paid.

 

The oz taxman is not interested in your legal money until it is earnt AFTER you become a resident. Anything paid in the uk until the day you land here doesn't exist. After that, if you are a resident the Ozzie taxman will take his share from your worldwide earnings. On our tax return here I have to put uk interest earned. I always enjoy writing in $1! As you will be a resident for only some of the Ozzie tax year, ending 30 th June, you will get a lot of tax back too. I got back nearly $6000 after working nov to jun.

[Rupert]

I don't think you need professional advice, I think it is clear.

 

Your severance and other payments are none of the Australian tax man's concern. Don't declare it and sleep easy.

 

In the UK you will get some tax deducted at source under PAYE, however unless you have an ongoing source of income you are quite likely to get most or all of this back as you get the full year personal allowance. You could get it back at the end of the year (April 2014) by doing a tax return, or if you have no ongoing income then you could do a p85 and do it now.

 

I am not sure whether the rules changed since I left but that is the first time I heard that severance is not taxable. It certainly used to be the case that the first 35k or so was tax free but tax payable as normal on the rest.

[Rupert]

As you will be a resident for only some of the Ozzie tax year, ending 30 th June, you will get a lot of tax back too. I got back nearly $6000 after working nov to jun.

 

I wonder how that happened, they should have known you only just arrived and taxed you accordingly. I would be a bit annoyed that I overpaid tax by $6k and someone else had the use of my money.

[poolprouk]

I don't think you need professional advice, I think it is clear.

 

Your severance and other payments are none of the Australian tax man's concern. Don't declare it and sleep easy.

 

In the UK you will get some tax deducted at source under PAYE, however unless you have an ongoing source of income you are quite likely to get most or all of this back as you get the full year personal allowance. You could get it back at the end of the year (April 2014) by doing a tax return, or if you have no ongoing income then you could do a p85 and do it now.

 

I am not sure whether the rules changed since I left but that is the first time I heard that severance is not taxable. It certainly used to be the case that the first 35k or so was tax free but tax payable as normal on the rest.

 

Thanks Rupert and to all above who have already responded. It sounds like good news.

 

In terms of the severance being taxable, it's not taxable here in the uk, i was just wondering if it was the case that the aussie tax man was interested in what i earn at the point i am paid severance in the uk he might not care that it's severance money as it's foreign income and demand to tax it. However it sounds like i will get it before i go so it's not something i should worry about.

[Rupert]

Thanks Rupert and to all above who have already responded. It sounds like good news.

 

In terms of the severance being taxable, it's not taxable here in the uk, i was just wondering if it was the case that the aussie tax man was interested in what i earn at the point i am paid severance in the uk he might not care that it's severance money as it's foreign income and demand to tax it. However it sounds like i will get it before i go so it's not something i should worry about.

 

There is no question of severance being taxed in Australia. My point was that in UK, severance has always been taxable over a certain amount in the region of 30k.

[dmjg]

I wonder how that happened, they should have known you only just arrived and taxed you accordingly. I would be a bit annoyed that I overpaid tax by $6k and someone else had the use of my money.

 

This is the department of education, it took them 3 months of looking at my letter from prior uk schools to agree that i had 7 years experience and should be paid more than a graduate.

 

I tried to get them to understand that I was only being paid for half a year so therefore my tax should be lower, but they didn't get it.

 

I guess an education is required to be a teacher, but to oversee and administer teachers can be done by anyone, whether their brains are connected or not.

[Guest GeorgeD]

I wonder how that happened, they should have known you only just arrived and taxed you accordingly. I would be a bit annoyed that I overpaid tax by $6k and someone else had the use of my money.

 

I got a similar amount back for my first year...similar circumstances, only in oz for part of the tax year.

[Guest]

nothing to d with Oz so dont worry about it. Believe me when you get here you will pay enough tax haha

[Peach]

I wonder how that happened, they should have known you only just arrived and taxed you accordingly. I would be a bit annoyed that I overpaid tax by $6k and someone else had the use of my money.

 

You are given 1/12th of your non-taxable allowance each month. This is exactly the same as the UK. Hence why people leaving the UK part way through the tax year often find they get a refund from HMRC as well as the ATO.

[Alan Collett]

I wonder how that happened, they should have known you only just arrived and taxed you accordingly. I would be a bit annoyed that I overpaid tax by $6k and someone else had the use of my money.

 

The PAYG system in Australia works by assuming you have the same income for the whole tax year.

 

So if you arrive in Australia in (say) February 2013 on a salary of $60k gross per annum:

 

* The PAYG withheld - each month, assuming you are paid monthly - will be computed on $5k. The PAYG on this will be about $1k.

 

* When you lodge your first Aus tax return the tax computation based on total income of $5k x 5, or $25k will show a tax liability of (roughly):

 

- Tax free threshold of $18,000 x 5/12, equals $7,500 - free of tax

 

Note: The tax free threshold is pro rated upon arrival, based on the number of months of residency in Australia - unlike the income tax rate bands , which are available in their entirety, even if you are only resident in Australia for 1 day in the tax year

- Balance of $17,500 taxed at 20.5% (including the Medicare Levy), equals $3,587.50

 

- Less: Low Income Tax Offset for 2012/13 of $445

 

- Tax payable for 2012/13 is $3,142.50

 

- Already paid under PAYG: $6,000 (ish)

 

- Tax repayable is just under $3k.

 

This is a quick "back of the envelope" type computation, but hopefully gives a flavour of why so many receive a tax repayment in the year they arrive in Australia.

 

Best regards.

[poolprouk]

Hi All,

 

Thanks again for your help. I have an extra question, this should be a bit simpler.

 

If i leave my company on 12 April, arrive in Australia on the 30th of april but am paid my PILON on 10th May (due to payroll running from 5th april to 3rd may) , where will my tax liability lie on the PILON?

 

UK because i earned it before 30th April ?

 

Australia because i received it into my account after the date i entered Australia?

 

Also, if i am liable in the UK, but am only resident until 30th April, how much tax free allowance do i get in the UK? The full amount or 1/12th of the annual tax free allowance.

 

The joy of tax.

[Ken]

Hi All,

 

Thanks again for your help. I have an extra question, this should be a bit simpler.

 

If i leave my company on 12 April, arrive in Australia on the 30th of april but am paid my PILON on 10th May (due to payroll running from 5th april to 3rd may) , where will my tax liability lie on the PILON?

 

UK because i earned it before 30th April ?

 

Australia because i received it into my account after the date i entered Australia?

 

Also, if i am liable in the UK, but am only resident until 30th April, how much tax free allowance do i get in the UK? The full amount or 1/12th of the annual tax free allowance.

 

The joy of tax.

 

You get the full amount of the tax free allowance. It's not pro-rated in the UK (unlike in Australia) however your PAYE liability will be calculated using only 1/12th of the allowance (and only 1/12th of the basic rate allowance). You'll probably therefore overpay tax which you'll have to reclaim from HMRC.

 

I don't know the answer to your first question. Generally speaking salaries and wages are taxed on a receipts basis which would mean wages you received after you became tax resident would be taxable in Australia. This is of course nonsense since they were really earned before you became tax resident but I don't know if there is anything in the rules to take that into account. It may well be that the receipts basis only applies to Australian Sourced wages (i.e. where you are working in Australia) - but unfortunately I've only studied the basics of Australian Tax so far.