Principles behind tax residency and split residency

[desreb]

Hi,We're looking to move back to the UK later this year after 5 years away - perhaps in early December. As such, we'd be AU tax-resident just under 50% of the year, but UK tax-resident less than 50% of the UK tax year.

 

I'm looking through the myriad of UK SRT residency tests, and no doubt Australia has its own too. I feel I need to look at the wood before the trees - I will seek tax advice for the detail, but I'm trying to work out what the general principle is between the two countries.

 

In a fairly average case - from full time employment in one country with all family, etc. to the same in the other country, with broadly simliar income tax brackets, etc. and no huge CGT or other liabilities, what is the underlying principle

- Does each country take the time you spend in each according to their tax year and apply their tax percentages for that period

- Or do the two tax regimes grapple as to whose residency you fall under, the accountant makes a determination, and then you pay tax in that country but receive relief for tax paid in the other country?

 

Currently, it feels like our decision and timing for going back in the UK is of a sensitivity that we'll end up with conditions such as doing so only travelling West, under the second full moon following the winter equinox, and only walking on alternate zebra crossing stripes, otherwise we'll lose our worldy savings and have to pay every penny of income to the government for the next 100 years.

 

For example, the UK Gov offers GBP8000 tax allowance for relocation expenses, which I assume you would need to be considered UK tax resident from the point that you moved back in order to realise!

 

Thanks, D

Edited October 10, 2016 by desreb

[Chortlepuss]

It's very complicated - and I'm assuming all worked out on a pro-rata basis. There must be lots of people spending part years in UK/Australia so if anyone could shed any light on this it would be helpful!

[Keith and Linda]

The 50% time in each country is not exactly a binding rule, something I thought it was until Marisawright on this forum set me on a check-it out journey. With the ATO It generally comes down to 'intent' of where you will be resident for tax purposes and many factors can/are used to determine this, so no single hard deciding rule, the 50% being one which could be used. Though you do state that you are moving back, then this admission could be the only determining factor used.

If it is determined that your intent is to reside in UK then it is possible that all your Aus income (no tax free allowance) could be taxed for the current tax year, and all future Australian income will be too (super). You may well need the advice of a good accountant whom is knowledgeable in these matters (some on this forum).

Good luck

[Marisawright]

As Keith and Linda says, the ATO takes the view that it's all in your intention. When we moved back to the UK it was always intended as a "trial run". An eventual permanent move was a possibility only. We didn't keep a home in Australia but we left most of our belongings there in storage. As it happens, it didn't work out and we returned after a year. I was treated as a resident on our last tax return, which included only the first couple of months in the UK, and I'm hoping to be treated as a resident on this tax return as well.

 

If you will be moving lock, stock and barrel then I'd expect the tax office to take that into account.

Edited October 12, 2016 by Marisawright