transfering savings/ house sale money

[leajk]

Hi,

 

Hoping someone can clear a couple of questions I have.

 

We have a fair sized savings pot and we have just sold our house so will be adding that to it as well.

 

We do not intend to buy in Australia for the first two years as we want to be sure on area first .

our savings pot will be our deposit on a house in Australia when we settle .

we are thinking of leaving it here in the hope that in 2yrs the exchange rate will have improved.

However I have read on another site that if there is a change in exchange rates between us entering Australia and transferring the money we will be taxed on the difference ! is this true ? surely it cant be ?

 

Also regarding capital gains on the property we paid £184k for the house and just sold it for £200k (we spent over £15k doing it up although I don't know how we can prove that as I don't have receipts for everything ) as this was our main residence and we intend to purchase a house in Australia would we need to pay capital gains at all ? or is there a certain amount of time you have between selling and buying ?

 

We also have another property that we rent out , we are going to continue renting that as a holiday let . I understand we need to continue filing a UK tax return and add it to the Australian tax return along with any tax deductions the uk may or may not have taken but my question on this property is when we come to sell it . if the value has increased ( which I expect it will have) I guess we will have to pay capital gains on that one for sure as it has not been our main residence for many years ?

 

Thanks in advance guys

[Notts]

The first question is which visa are you on? If it is a temporary visa then you are likely to be exempt from tax on overseas income.

 

Assuming that is not the case:

 

- Yes, gains due to movements in exchange rates are assessable for tax. It is possible to elect for bank accounts holding up to $250,000 (in total) to be exempt. Search the ATO website for the relevant rules.

 

- Liability for capital gains tax arises on the sale, so if you sell before moving then Australian CGT isn't an issue. (The gain won't attract UK CGT as it will be covered by the Principle Private Residence Relief)

 

- Regarding the investment property, yes you will need to consider Australian CGT when you sell it. Currently you wouldn't have to pay UK CGT as non-residents, but this is due to change from the 2015/6 tax year.

[Gbye grey sky]

If the exchange rate was to improve over that 2 years then yes you will have a tax liability but you would still have gained overall of course by exchanging at a better rate. At the moment there appears to be slightly better savings rates on offer in Australia compared with the UK which is worth bearing in mind unless you are very confident that the exchange rate will improve over the two years.

[leajk]

Thanks guys ,

Yes Notts we are going on a permanent residents visa. so am I right in thinking that in 2015/16 we I have to pay CGT in the UK I wont have to pay again in Australia ?

as this is part of the double taxation agreement ?

 

Gbye grey sky - no were not confident the exchange rate will go up but I guess there's always a chance, our Australian bank (NAB) is only paying 2.5%

and our UK is 1.45% so there not much in it.

 

Just found out that our house sale money is exempt from the exchange rate increase tax for up to 4 years on our main residence so that good enough for me to take the chance

[Gbye grey sky]

Just found out that our house sale money is exempt from the exchange rate increase tax for up to 4 years on our main residence so that good enough for me to take the chance

 

Not saying you are wrong but are you sure that applies if you have sold the house in UK before taking up your PR. I would be surprised.

[leajk]

Thats what the tax advisor from Global QROPS just told me ,

Other cash is subject to the tax but if you can prove the money is from the sale of your main residence you have 4yrs from selling the property to move the money without having to pay any exchange rate increase tax.

 

I guess he know what hes talking about.

[tina0101]

This isnt even something we'd thought about!! Bit confused now!!

We've sold our house and will be transferring our profit to Australia. Do you know if this means we have to pay any tax at either end???

[mxh]

If the exchange rate was to improve over that 2 years then yes you will have a tax liability but you would still have gained overall of course by exchanging at a better rate. At the moment there appears to be slightly better savings rates on offer in Australia compared with the UK which is worth bearing in mind unless you are very confident that the exchange rate will improve over the two years.

 

Really?

 

So are you suggesting that when you transfer the money from a UK account (via a money transfer service) to an Australian account, the ATO will then look back to see what dates you originally put that money into the UK account, identify what the exchange rate was at that time, and see if you've made a 'profit' by waiting until now to do the exchange?

 

Seems a bit far-fetched to me - any links to anything official stating this?

[Gbye grey sky]

Really?

 

So are you suggesting that when you transfer the money from a UK account (via a money transfer service) to an Australian account, the ATO will then look back to see what dates you originally put that money into the UK account, identify what the exchange rate was at that time, and see if you've made a 'profit' by waiting until now to do the exchange?

 

Seems a bit far-fetched to me - any links to anything official stating this?

 

Banks and money exchange companies have reporting obligations for any large or regular money transfers. HMRC receive this info so am sure that the ATO would too. They are unlikely to check all of them but it is up to the individual taxpayer to demonstrate and prove the origin of the money (money laundering rules come into play too).

 

Not sure why you think having to declare income and profits is far-fetched. It applies to all income. Some choose not to declare all income and don't get discovered but others do.

[Gbye grey sky]

This isnt even something we'd thought about!! Bit confused now!!

We've sold our house and will be transferring our profit to Australia. Do you know if this means we have to pay any tax at either end???

 

No you don't have tax to pay. The question was about leaving the money in the UK and bringing it over later. There is no tax to pay on any profit from selling your home/ primary residence.

[mxh]

Banks and money exchange companies have reporting obligations for any large or regular money transfers. HMRC receive this info so am sure that the ATO would too. They are unlikely to check all of them but it is up to the individual taxpayer to demonstrate and prove the origin of the money (money laundering rules come into play too).

Not sure why you think having to declare income and profits is far-fetched. It applies to all income. Some choose not to declare all income and don't get discovered but others do.

 

I'm not suggeting that declaring income and profits is far fetched.

 

But what you're suggesting is that the ATO / HMRC may check to see when the money was put into the UK account and tax you on the difference between the value then and the value now based on the exchange rate. That's a totally different thing - there is no 'income' or 'profit' involved.

 

No you don't have tax to pay. The question was about leaving the money in the UK and bringing it over later. There is no tax to pay on any profit from selling your home/ primary residence.

 

So how long would it need to be left in the UK before the ATO / HMRC want to tax it? The exchange rate can change a lot in just a couple of days. Is it 'tax free' for a week? A month?

 

Again, any links to any official documentation detailing this ruling?

[Gbye grey sky]

I'm not suggeting that declaring income and profits is far fetched.

 

But what you're suggesting is that the ATO / HMRC may check to see when the money was put into the UK account and tax you on the difference between the value then and the value now based on the exchange rate. That's a totally different thing - there is no 'income' or 'profit' involved.

 

So how long would it need to be left in the UK before the ATO / HMRC want to tax it? The exchange rate can change a lot in just a couple of days. Is it 'tax free' for a week? A month?

 

Again, any links to any official documentation detailing this ruling?

 

Not suggesting that. Tax authorities seek evidence of origin of monies from the taxpayer.

 

There are people out there making a living trading exchange hour by hour. Someone earlier referred to a tax free period of 4 years if the source of the UK funds was a house sale. Would certainly be interesting to know if there is a tax free period for other monies as I might look to have some of my savings follow me out when I move next year.

[Notts]

I'm not suggeting that declaring income and profits is far fetched.

 

But what you're suggesting is that the ATO / HMRC may check to see when the money was put into the UK account and tax you on the difference between the value then and the value now based on the exchange rate. That's a totally different thing - there is no 'income' or 'profit' involved.

 

 

 

So how long would it need to be left in the UK before the ATO / HMRC want to tax it? The exchange rate can change a lot in just a couple of days. Is it 'tax free' for a week? A month?

 

Again, any links to any official documentation detailing this ruling?

 

The ATO's summary of the foreign exchange rules is https://www.ato.gov.au/Business/International-tax-for-businesses/In-detail/In-detail/Overview/Foreign-exchange-(forex)--overview/.

 

There is a profit (or loss) involved where exchange rates move, as your asset is worth more or less than it was before.

 

Of course under a self-assessment regime taxpayers are required to declare all taxable income - it is not about the ATO going looking for gains. They can ask for more information if your return is audited/they suspect something.

[leajk]

I'm not suggeting that declaring income and profits is far fetched.

 

But what you're suggesting is that the ATO / HMRC may check to see when the money was put into the UK account and tax you on the difference between the value then and the value now based on the exchange rate. That's a totally different thing - there is no 'income' or 'profit' involved.

 

 

 

So how long would it need to be left in the UK before the ATO / HMRC want to tax it? The exchange rate can change a lot in just a couple of days. Is it 'tax free' for a week? A month?

 

Again, any links to any official documentation detailing this ruling?

 

Referring to a conversation I have with a tax advisor its all about when you take up your residency in Australia ,not when the money was placed in the bank account . for example : I have just sold my house funds will be in my account next week . we move on 31st January 2015 if we take the money with us that day you get what ever the current exchange rate is ...no tax to pay. if you leave it in a UK bank account for five years and in that time the exchange rate has increased from 1.8 to 2.1 then you would have to pay tax on the 30 cent increase ie 6 cents in the pound . however if you transfer your house sale money (and you can prove it is from the sale of you main residence) within 4 years there is no tax to pay. so basically move it before your 4 years is up.

If the money in your account is not from your house sale eg savings then the 4 year rule does not apply. so make a note of the exchange rate the day you take up residency in Australia. but on a positive note if the exchange rate was to increase by 30 cents then you would still be 24 cents up in the pound so your still onto a winner :wink:

[leajk]

This isnt even something we'd thought about!! Bit confused now!!

We've sold our house and will be transferring our profit to Australia. Do you know if this means we have to pay any tax at either end???

N

o tax to pay either end unless you decided to keep the house sale money in the UK for more than 4 yrs then it would be subject to tax on any exchange rate increase

 

Any other moneys also no tax to pay either end unless you keep the money in the UK and when you come to change it , be it a month a year or 2 yrs, you would be liable for tax on the different in exchange rate but you will still be up on the exchange rate as you would only be taxed on the difference

[Bridgeman]

In response to your first question, No, you do not need to pay tax on any foreign exchange gains made my leaving your money in the UK and bringing it over when the exchange rate is better as it is considered of a 'private and domestic nature'. In general you do pay tax on foreign exchange rate gains, however if this is from the sale of your house then you do not need to declare it. Many tax professionals will tell you that you need to apply for a private ruling to the ATO.

 

We have just gone through this process and applied for a private ruling ourselves as we had recently brought over some of the money from our house sale. We received a call from the ATO explaining that as the money was from the sale of our only main residence in the UK it was considered of a 'private and domestic nature' and that we did not need to declare it and that we should withdraw the application.

 

https://www.ato.gov.au/rba/content/?ffi=/misc/rba/content/1011645656132.htm

 

With regard to paying capital gains tax on your house and your rental it's a bit more complicated. The laws are about to change soon. I believe that the UK government may charge CGT on properties which are the main residence. If you do a search on this forum you should be able to find some information. However, if you have already sold the house, then I assume the new laws won't apply. It may apply however to the rental property as this is an investment.

[ekf]

Bridgeman - you have actually made my year! My husband and I are in a very similar situation and have just spent the last week researching and reading the tax legislation to try to figure all of this out. Thank you for sharing your experience, it has meant we can now breathe a sigh of relief.

[leajk]

In response to your first question, No, you do not need to pay tax on any foreign exchange gains made my leaving your money in the UK and bringing it over when the exchange rate is better as it is considered of a 'private and domestic nature'. In general you do pay tax on foreign exchange rate gains, however if this is from the sale of your house then you do not need to declare it. Many tax professionals will tell you that you need to apply for a private ruling to the ATO.

 

We have just gone through this process and applied for a private ruling ourselves as we had recently brought over some of the money from our house sale. We received a call from the ATO explaining that as the money was from the sale of our only main residence in the UK it was considered of a 'private and domestic nature' and that we did not need to declare it and that we should withdraw the application.

 

https://www.ato.gov.au/rba/content/?ffi=/misc/rba/content/1011645656132.htm

 

With regard to paying capital gains tax on your house and your rental it's a bit more complicated. The laws are about to change soon. I believe that the UK government may charge CGT on properties which are the main residence. If you do a search on this forum you should be able to find some information. However, if you have already sold the house, then I assume the new laws won't apply. It may apply however to the rental property as this is an investment.

 

 

Thanks for that link Bridgeman , very useful.

 

I am still trying to get my head around the rental though.

 

I am leaving a UK bank account to service the holiday let .

I am going to leave £10k in it to cover costs of anything that might occur over the next 3 years and any shortfall in the rent.

after 3 years we might sell it.

 

we don't make a lot on the rental, it just about covers its own costs so in theory should end up with the £10k still in the account in 3yrs time.

assuming nothing major happens.

 

I will still be completing the tax return for the rental in the UK and I will declare any profits on my Australian tax return (if any) so tax on profits will be paid in Australia even though the money will remain in the UK bank account. What happens when I want to transfer the original £10k into my Australian account ? I guess they then tax me on any increase on the exchange rate from when I became resident in Australia and CGT on the property when I sell?

 

Its all very confusing but want to get it straight in my head as I don't want to get caught out later down the line.

[Bridgeman]

It's difficult to predict. As I the said the rules on CGT in the UK are changing so you may well end up having to pay CGT in the UK. Here's the link to what's being proposed. I don't know how far this has got yet:

 

https://www.gov.uk/government/consultations/implementing-a-capital-gains-tax-charge-on-non-residents

 

But also bear in mind that there is the allowance, before you need to pay any CGT - not sure if this will change or not. As Australia and the UK have a double taxation agreement you may not have to pay CGT in Australia.

 

If you do end up paying in Australia rather than the UK you should be aware that they take the value of the property at the time you acquired it and use the exchange rate that prevailed at that time to calculate the Oz dollar value. The proceeds from the sale are then worked out at the exchange rate which prevailed at the time of the sale. You can get all these official rates from the ATO website. It depends how long you have owned the property. You may find you have actually made a loss in Oz dollar terms as happened to a friend of ours.

[leajk]

"If you do end up paying in Australia rather than the UK you should be aware that they take the value of the property at the time you acquired it and use the exchange rate that prevailed at that time to calculate the Oz dollar value. The proceeds from the sale are then worked out at the exchange rate which prevailed at the time of the sale. You can get all these official rates from the ATO website. It depends how long you have owned the property. You may find you have actually made a loss in Oz dollar terms as happened to a friend of ours".

 

 

That would be a disaster for us as we purchased the property in 2010 when the exchange rate was 1.46 now is its 1.8 we would have a CGT on A$46,920 without the value of the house increasing in the Uk!!!

 

Just seen this on a website . lf I'm reading it right they as saying they take the value of the property from when you become an Australian Resident rather that when you purchased the property. then you pay CGT on any increase when you come to sell it.

I am summing that if I have to pay the CGT in the UK ( which is in the planned changes for 2015) then I wont have to pay in Australia because of the double taxation agreement ?

 

 

Q: I am planning to emigrate to Australia. Will there be any Australian CGT consequences on my holdings of my overseas investments once I move to Australia.

 

A: Yes. Individuals emigrating to Australia will normally be deemed to be residents of Australia for taxation purposes from the date of their arrival in Australia. Australia’s CGT rules will then deem you to acquire all your CGT assets that are not already Australian taxable property; on the date of your arrival for their market value at that date. You will then be subject to Australian CGT on any subsequent disposal of those assets.

[Bridgeman]

I am not really an expert on CGT but am just going by friend's experience and the following although this may be for people who acquire assets abroad when they are already in Australia:

 

You need to work out the amount for each element, then add them together to work out the cost base of your CGT asset.

An amount paid in a foreign currency that is included in an element of the cost base is converted to Australian currency at the time of the relevant transaction or event.

 

https://www.ato.gov.au/General/Capital-gains-tax/In-detail/Guides/Guide-to-capital-gains-tax-2012-13/?page=10

 

I seem to remember that Alan Collett has also mentioned this on this forum.

 

Maybe wait a while and keep an eye on what happens in the UK.

[QuinninOz]

This is a great discussion. I am not a tax expert by any means, but I have moved countries several times including to Australia from the UK. I am just about to do it all again and head back to Australia with a very similar situation. I just wanted to say, that I think you are wise to wait to send you money to Australia. Yes, we will likely pay tax on the gains but who cares - they are gains not losses! The Aussie dollar in my humble opinion is chronically and historically overvalued but it could stay this way for some time. The second point I wanted to make is that you should find an accountant who is competent with helping expats - this may take some "shopping around" but I suspect you have other tax issues that will also benefit from someone who know hows to help people like us.

[tommo64]

Banks and money exchange companies have reporting obligations for any large or regular money transfers. HMRC receive this info so am sure that the ATO would too. They are unlikely to check all of them but it is up to the individual taxpayer to demonstrate and prove the origin of the money (money laundering rules come into play too).

 

Not sure why you think having to declare income and profits is far-fetched. It applies to all income. Some choose not to declare all income and don't get discovered but others do.

 

Does anyone know what the definition of a 'large' transfer is and what the threshold amount is before the reporting obligation kicks in?

[Gbye grey sky]

Does anyone know what the definition of a 'large' transfer is and what the threshold amount is before the reporting obligation kicks in?

 

It always used to be £10,000 in the UK I believe but a number of smaller deposits/transfers would also trigger reporting obligations.

[atiredperson]

Referring to a conversation I have with a tax advisor its all about when you take up your residency in Australia ,not when the money was placed in the bank account . for example : I have just sold my house funds will be in my account next week . we move on 31st January 2015 if we take the money with us that day you get what ever the current exchange rate is ...no tax to pay. if you leave it in a UK bank account for five years and in that time the exchange rate has increased from 1.8 to 2.1 then you would have to pay tax on the 30 cent increase ie 6 cents in the pound . however if you transfer your house sale money (and you can prove it is from the sale of you main residence) within 4 years there is no tax to pay. so basically move it before your 4 years is up.

If the money in your account is not from your house sale eg savings then the 4 year rule does not apply. so make a note of the exchange rate the day you take up residency in Australia. but on a positive note if the exchange rate was to increase by 30 cents then you would still be 24 cents up in the pound so your still onto a winner :wink:

 

Thanks for sharing the information.

 

So if I sell my main house in my home country after I have taken up residency in Australia, I would be taxed. Question, how's the calculation for the tax? They would use the price difference of when I sell the house and when I purchase the house (probably 20 years ago)? Or... ?

 

Assuming I sell the house before I take up residency in Australia, I am able to bring in the fund from house sale to Australia within 4 years of residency, and there would be no tax. However, if I bring in the money 4 years after, I am liable to pay tax for the gain in exchange rates only, but not on the gain from house sale?

 

Any advice would be appreciated. Thanks.