Minimising Australian Tax Liability - ideas?

[Marisawright]

There are several other threads about older people returning to the UK. For older people, relocating their investments isn't always practical - but not doing so can result in losing money.

 

This is how I understood it:

 

TAX PENALTIES MOVING TO THE UK

 

 

 

1. Any income you earn in Australia (e.g. interest payments, rent on property) is still taxed by Australia, not by the UK. The big snag is that you get NO TAX-FREE THRESHOLD. So where you could earn about $18,000 tax-free in Oz, now you'll pay tax on every dollar.
   
2. If you have a self-managed superannuation fund, its profits will be taxed at 47% (by Australia).
   
3. If you are receiving pensions from Australia (govt. or super), the British Government will tax them as income. Neither of those would be taxed if you were still in Australia, so you'll be worse off.
   

 

 

The simple way to avoid (1) is to move all your investments to the UK. However that's going to cost in capital gains tax (which I believe is levied by the UK not Australia, which is confusing??). I have a rental unit which I'd rather not sell as it's in good condition and paying good income, plus the CGT will hurt!

 

The simple way to avoid (2) and (3) is to cash out your super and take the lump sum to the UK. Perhaps put it in an equivalent in the UK (whatever that is). I have no idea how to avoid paying tax on the government pension.

 

Anyone want to share ideas on how these issues can be handled? I saw someone mention that they were having their rental paid straight into superannuation to avoid tax? Is this information even right?

Edited January 19, 2014 by Marisawright

[Lostlily]

There are several other threads about older people returning to the UK. For older people, relocating their investments isn't always practical - but not doing so can result in losing money.

 

This is how I understood it:

 

 

 

 

1. Any income you earn in Australia (e.g. interest payments, rent on property) is still taxed by Australia, not by the UK. The big snag is that you get NO TAX-FREE THRESHOLD. So where you could earn about $18,000 tax-free in Oz, now you'll pay tax on every dollar.

2. If you have a self-managed superannuation fund, its profits will be taxed at 47% (by Australia).

3. If you are receiving pensions from Australia (govt. or super), the British Government will tax them as income. Neither of those would be taxed if you were still in Australia, so you'll be worse off.

 

 

The simple way to avoid (1) is to move all your investments to the UK. However that's going to cost in capital gains tax (which I believe is levied by the UK not Australia, which is confusing??). I have a rental unit which I'd rather not sell as it's in good condition and paying good income, plus the CGT will hurt!

 

The simple way to avoid (2) and (3) is to cash out your super and take the lump sum to the UK. Perhaps put it in an equivalent in the UK (whatever that is). I have no idea how to avoid paying tax on the government pension.

 

Anyone want to share ideas on how these issues can be handled? I saw someone mention that they were having their rental paid straight into superannuation to avoid tax? Is this information even right?

 

This is how I understood it:

 

TAX PENALTIES MOVING TO THE UK

 

Well as I understand it (I may be totally wrong) If you keep your investment property in Aus and lose your $18,000 tax free threshold, this would be made up for by your approx 10,000 GBP pa (each) personal tax allowance I think?? UK and Aus have a reciprocal arrangement for tax, so you won't be paying twice.

 

Cash out your SMSF and transfer the cash to UK, sure you will be taxed on the interest, but that is not much anyway.

 

We wouldn't be eligible for an Aus pension, so cannot comment. But once back in the UK, the Uk pension will be index linked which it is not if you are in Australia. I also believe that my husbands UK pension is actually assessed for tax in Australia, which possibly may not be the case if we were back in the UK?

 

We have also spent a lot of time looking into this, as we wanted to spend 6 months in UK and 6 months in Australia, as we now have grandchildren in both places. There are a hell of a lot of things to take into consideration and at this present moment we have given up/put on hold this plan for various reasons.

 

I am back in the UK on holiday at the moment, and the pull is so strong it so feels like home here.

 

 

 

 

[Marisawright]

This is how I understood it:

 

TAX PENALTIES MOVING TO THE UK

 

Well as I understand it (I may be totally wrong) If you keep your investment property in Aus and lose your $18,000 tax free threshold, this would be made up for by your approx 10,000 GBP pa (each) personal tax allowance I think?? UK and Aus have a reciprocal arrangement for tax, so you won't be paying twice.

 

No it wouldn't, because if I stay in Oz I will get the tax free threshold (which more or less covers the rent). So, no tax to pay. If I'm a UK resident, I'll pay 30% tax on the whole rent. Sure, I won't have to pay tax again in the UK - but the UK won't give me back the tax I paid in Oz!

 

Cash out your SMSF and transfer the cash to UK, sure you will be taxed on the interest, but that is not much anyway.

 

Yes, that's pretty much what we would do.

 

We wouldn't be eligible for an Aus pension, so cannot comment. But once back in the UK, the Uk pension will be index linked which it is not if you are in Australia. I also believe that my husbands UK pension is actually assessed for tax in Australia, which possibly may not be the case if we were back in the UK?

 

All income in taxable in the UK including your pension, I believe.

[Aunt Agatha]

I'm sorry I can't answer your questions but was wondering if you knew at what rate Australian Super income would be taxed in the UK please?

[Lostlily]

No it wouldn't, because if I stay in Oz I will get the tax free threshold (which more or less covers the rent). So, no tax to pay. If I'm a UK resident, I'll pay 30% tax on the whole rent. Sure, I won't have to pay tax again in the UK - but the UK won't give me back the tax I paid in Oz!

 

Agreed you would pay tax on the whole rent in Australia, but would this not be offset by your personal tax allowance in the UK, ie. any other income i.e. interest on investments, pension payments etc could utilise the tax free allowance in the UK? I may be missing something vital here?

 

Will look into it a bit more when I get a chance.

[rosiew]

If you are up for a lot of CGT is it better to get the 50% discount by selling it while you are here?

[Marisawright]

I'm sorry I can't answer your questions but was wondering if you knew at what rate Australian Super income would be taxed in the UK please?

 

You would just declare it as income on your UK tax return. It doesn't get any special treatment. So the rate would depend on what your total income was.

[Marisawright]

If you are up for a lot of CGT is it better to get the 50% discount by selling it while you are here?

 

Yes it would, definitely - because you don't get the 50% discount once you've become a non-resident. But you have to admit, paying any CGT hurts!

[Marisawright]

No it wouldn't, because if I stay in Oz I will get the tax free threshold (which more or less covers the rent). So, no tax to pay. If I'm a UK resident, I'll pay 30% tax on the whole rent.

 

Agreed you would pay tax on the whole rent in Australia, but would this not be offset by your personal tax allowance in the UK, ie. any other income i.e. interest on investments, pension payments etc could utilise the tax free allowance in the UK? I may be missing something vital here?

 

If we stay in Australia, I pay very little tax on my investment property and my husband pays very little tax on his investments, because both amounts aren't much more than the tax-free threshold. Then we get our superannuation, which is tax-free.

 

If we go to the UK, I pay 30% tax on my property and he'd pay 10% tax on his investments to Australia. We'd get the benefit of the UK personal tax allowance - so that might mean our super will still be tax-free. However, it doesn't change the fact that we've paid all that tax to Australia - Britain won't double tax those, but they won't give us any money back on them either.

[Thom]

This topic is covering the question I asked here, so I'll repost.

 

http://www.pomsinoz.com/forum/money-transfer-ask-moneycorp/212602-when-does-tax-hit.html

[hypothetical]

Me and the wife retire.

We move back to Blighty.

We have two lots of super paid into our Australian bank accounts.

As and when needed we transfer money from our Aussie accounts to our UK bank accounts.

When is this money taxed?

[/hypothetical]

[Gbye grey sky]

Am I missing something or misinterpreting here?

 

Your main issue is the CGT should you sell the Aus investment property but unless you were planning on keeping that property imperpetuity there was always going to be CGT when it was sold. No tax is enjoyable to pay but CGT after all is a tax on capital appreciation really so the income has not really been earned. I have no knowledge of how CGT is calculated in Aus ( is length of time owned taken into account, are there any reliefs or allowances such as you get in the UK on CGT?) but have you worked out what that would be in $s and what that would leave you when coming to UK?

 

You can gradually invest the money in ISAs in the UK (cash or shares or a combination) and the income from those would be tax free. You also have your tax free allowances and pensioners get other concessions. Only you have the actual numbers but I wonder whether you might be getting too hung up on the issue of tax and limiting liability to it rather than looking at whether it is actually unaffordable to move.

[Alan Collett]

The issue here is (I think) that CGT is payable on Australian real estate by non residents without the benefit of the CGT discount that is available to residents, or the tax free threshold and 19% income tax rates: the first $ of gain is taxed at 32.5%.

 

Also rental losses in the hands of non residents can only be rolled up and claimed as tax deductions to reduce assessable income generally when one resumes tax residency in Australia.

 

Best regards.

[Gbye grey sky]

Yes but it is undoubtedly better to take the CGT 'hit' while still Aus resident, limiting the CGT, and take the capital from the sale to the UK and invest it over there to bring in an income. Using tax free savings vehicles such as ISA's in the UK will help particularly over time. I don't think that rental losses is a factor.

 

Retaining an investment property in Aus when you are planning to live in the UK is fraught with issues anyway.

[Alan Collett]

If you are planning to sell the property - yes, probably better to take the CGT hit while still Aus resident.

 

But, putting investment returns aside, if an Australian is planning to return to Australia at some point, or if you are planning to move to Australia having an Australian investment property (or two, or more) is pretty good from an Australian taxation perspective.

 

The depreciation allowances are attractive on new/recently built property, and tax deductions - ie negative gearing - are very generous once you have become tax resident in Australia.

 

Best regards.

[Gbye grey sky]

True, however I was looking at from the viewpoint of someone who I understood was planning to emigrate/retire to the UK and probably could not really afford the cost of ping ponging.

 

Correct me if I am wrong but negative gearing is of limited or no value unless you have taxable earnings to offset the loss. If you are retired living off pension/Super it is irrelevant surely. There is no suggestion here that the OP is benefitting now from negative gearing, rather they are relying on the rental income.

[Aunt Agatha]

You would just declare it as income on your UK tax return. It doesn't get any special treatment. So the rate would depend on what your total income was.

 

Thank you, the special treatment question was what I wondered about.

[Thom]

When would you be asked to declare any income after you returned to the UK? (not that I'm thinking of tax dodging, not me, no way.... )

[Marisawright]

Yes but it is undoubtedly better to take the CGT 'hit' while still Aus resident, limiting the CGT, and take the capital from the sale to the UK and invest it over there to bring in an income. Using tax free savings vehicles such as ISA's in the UK will help particularly over time. I don't think that rental losses is a factor.

 

Retaining an investment property in Aus when you are planning to live in the UK is fraught with issues anyway.

 

I don't see why retaining an investment property while overseas is fraught with any kind of issues. I've owned several, always used a good agent and never needed to visit the properties myself after I bought them - so there would be no difference really. My current property is leased to Defence Housing so it's even safer.

 

The big issue, which applies to me but not to everyone, is that I'm not 100% convinced that the UK is absolutely, definitely the place I want to spend the rest of my life. In fact, looking at others' experience, I think it's naive of anyone to be certain after 30 years' absence! So I'm very reluctant to sell up , cash in all my super and convert it into pounds sterling, in case I eventually want/need to come back to Oz.

 

I guess I'm especially jumpy about this becauseof what happened when I emigrated. When we came out to Australia, we sent all our savings over. At that time the Aussie dollar was worth about 80p. Within six months, it was worth only 43p. If we'd been unhappy and wanted to go home, we would've lost half our savings in the conversion! So I'm ultra-conscious of fx risks.

Edited June 8, 2014 by Marisawright

[Marisawright]

When would you be asked to declare any income after you returned to the UK? (not that I'm thinking of tax dodging, not me, no way.... )

 

It depends when you're considered resident in the UK. I think you have to be there six months, but whether that first six months is then considered part of your residence time, I don't know.

 

Then you'd have to declare your income in your first UK tax return. If you've still got investments in Australia, you'd have to submit an Aussie tax return at the usual time.

[Sustain]

Singapore?

[flag of convenience]

I'd not allow tax implications to rule my life and go to where I would prefer to be, at a certain point in my life. I'd leave things as for two years and come to a decision my preference. OZ to far to travel I'd have thought after a certain age, sometimes something over looked.

 

Personally I'd look at renting in Malta, Turkey, Albania, Macedonia and the like to winter, with a half eye on an alternative place to retire half the year.

[Marisawright]

Singapore?

 

My main reason for moving is that my husband is photo-sensitive and phobic about skin cancer. Also, I get terrible hot flushes in humid weather so I find Sydney summers unbearable. So I don't think Singapore would work somehow...

[Marisawright]

I'd not allow tax implications to rule my life and go to where I would prefer to be, at a certain point in my life. I'd leave things as for two years

 

Tax implications wouldn't rule my life if I had plenty of money. My position is that I think we have enough to be comfortable in retirement, but not if we're going to lose ONE THIRD of that nest egg through tax. I'm not sure how delaying for another two years would help - if I don't have enough information to decide now, what's going to make up my mind in two years? The sentence doesn't quite make sense so maybe something got lost in the editing?

 

Personally I'd look at renting in Malta, Turkey, Albania, Macedonia and the like to winter, with a half eye on an alternative place to retire half the year.

 

We love watching those programs about buying homes in Tuscany etc, but we know it wouldn't be for us. I would be miserable anywhere I couldn't go to my ballroom dancing, belly dancing, writers' group, concerts and shows. So a picturesque village in Albania would be my idea of hell!

Edited June 8, 2014 by Marisawright

[Gbye grey sky]

I don't see why retaining an investment property while overseas is fraught with any kind of issues. I've owned several, always used a good agent and never needed to visit the properties myself after I bought them - so there would be no difference really. My current property is leased to Defence Housing so it's even safer.

 

The big issue, which applies to me but not to everyone, is that I'm not 100% convinced that the UK is absolutely, definitely the place I want to spend the rest of my life. In fact, looking at others' experience, I think it's naive of anyone to be certain after 30 years' absence! So I'm very reluctant to sell up , cash in all my super and convert it into pounds sterling, in case I eventually want/need to come back to Oz.

 

I guess I'm especially jumpy about this becauseof what happened when I emigrated. When we came out to Australia, we sent all our savings over. At that time the Aussie dollar was worth about 80p. Within six months, it was worth only 43p. If we'd been unhappy and wanted to go home, we would've lost half our savings in the conversion! So I'm ultra-conscious of fx risks.

 

As you are trying to keep options open and hedge your bets on the move it does make sense to have a foot in both camps but to do that you probably need to be well off. Your original point was that you thought the tax system was unfair for people who wanted to return to the UK to retire but I am sensing that what is really the problem is getting the tax system to work for you while you potentially ping pong.

 

We are nearing retirement age and heading the other way but are just 'going for it'. We really don't (and this is a totally personal decision) fancy the thought of retiring in a cold, damp country and we have a fantastic opportunity that allows us not to. If it turns out not to be ideal we will make the best of it as indeed we would have if we had no option but to live out our retirement in the UK.

 

Whilst I take your point about the property I doubt whether many UK pensioners would invest much of their retirement nest egg in a residential property half way around he world, and for good reason. Perhaps you just need to try out the UK for a while to see if it really offers what you are seeking. If that is unaffordable your only option is to commit one way or the other. Once you commit you will be better placed to make the finances/tax position work better for you.

[Gbye grey sky]

When would you be asked to declare any income after you returned to the UK? (not that I'm thinking of tax dodging, not me, no way.... )

 

Not everyone has to complete a tax return in the UK but if you have income to declare that may result in an additional tax liability you are expected to register and ask to be sent a tax return. If you do not and HMRC make a discovery of that income (and bear in mind most institutions home and abroad now have reporting obligations in relation to UK tax residents) then you are likely to find yourself liable to substantial financial penalties on top of the tax and interest. Claiming ignorance of the rules won't help much except perhaps to mitigate the penalty in some cases.