When moving between the UK and Australia, it is important to be aware of the differences that each jurisdiction imposes on areas of personal taxation. Failing to comply with the relevant procedures and local tax legislation could leave individuals with a series of penalties.
The table below highlights a list of arguably the most important areas of personal taxation that individuals should be aware of when moving between the UK and Australia. Whilst both countries operate a progressive income tax system, with the top tax rate peaking at 45%, this is where similarities cease as from here on, the UK and Australian tax systems function differently in almost every way.
UK Tax System vs Australian Tax System:
| UK Tax System | Australian Tax System | |
|---|---|---|
| Tax Year for individuals | 6 April to 5 April | 1 July to 30 June |
| Who is required to file/lodge a Tax Return |
In the UK, most individuals who are employed will pay tax on their income through payroll and are not required to file a Tax Return. Tax Returns are required where:
|
All Australian residents and non-residents with any Australian sourced income (some exclusions apply) |
| Payroll System | In the UK, HMRC operates a Pay As You Earn (PAYE) system where tax is collected by the employer through every payslip. The employer then remits the tax withheld to the tax office (HMRC). | Australia operates a Pay As You Go Withholding system which deducts tax and is then paid to the tax office. As with the UK, the employer withholds tax when processing payroll and then forwards this to the tax office. |
| Tax Free Allowance | UK residents (and in some instances non-residents) receive a tax-free personal allowance each year. In 2023-23, the tax-free personal allowance is £12,750. In certain circumstances this can be reduced or increased. | There is a tax-free threshold of $18,200 for all Australian resident taxpayers, regardless of the source of income. Foreign and temporary residents are excluded from this threshold. |
| Income Tax | The UK operates progressive rates of income tax which include:
|
Australia operates progressive rates of income tax which include:
The income tax rates above are for ‘Australian’ Residents only. Different rates apply for ‘temporary’ and ‘foreign’ residents. |
| Capital Gains Tax |
In the UK there is a Capital Gains Tax allowance of £12,300 per year (2022-23). After this your tax rate will depend on whether you’re a ‘Basic rate’ tax payer or ‘Higher rate’ tax payer: Basic Rate: 18% on residential property and 10% other chargeable assets Higher Rate: 28% on residential property and 20% other chargeable assets |
There is a 50% Capital Gains Tax discount for Australian individuals who own an asset for 12 months or more. This means you pay tax on only half the net capital gain on that asset. Taxable Capital Gains are added to the individuals assessable income and are taxed at the marginal rate at which the income falls. |
| Inheritance Tax | In the UK, the standard Inheritance Tax threshold is £325,000 (which can increase to £500,000 where the home is passed to children of the deceased). Where an estate is valued over £325,000 there is a 40% Inheritance Tax rate. | Australia does not have any Inheritance Tax. |
| Tax Return Deadline | 31 January following the end of the tax year (31 October if filing a paper return). | In Australia, the due date is 31 October following the end of the tax year. However, if an individual is registered with a tax agent this will usually extend to 15 May of the following year i.e. tax-year end 30 June 2022 would be due 15 May 2023. |
| Tax Payment Deadline | 31 January following the end of the tax year. This is the same as the tax return deadline. |
In Australia, the tax payment deadline depends on when the tax return is due and the date it is lodged. Where a tax return is due 15 May, the following payment dates will apply when the tax return is lodged:
If the tax return is not due by 15 May, the payment will be due on the later of 21 days after the:
|
| Assessable on Worldwide Income | UK residents, for tax purposes are taxed on their worldwide income*. |
Australian residents for tax purposes, are also taxed on their worldwide income. ‘Foreign’ and ‘temporary’* residents for tax purposes only need to declare income and gains derived in Australia. |
| National Insurance/ Medicare | In the UK, both the employee and employer are required to pay national insurance contributions each month. The rates vary from 0% to 13.8%. National Insurance is also due on self-employed income. | In Australia, individuals must pay a flat rate of Medicare (unless exempt). The Medicare levy is 2% of an individual’s taxable income. An additional Medicare levy of up to 1.5%, unless they pay for private health insurance. |
*Assessable on worldwide income (UK) – Individuals resident of the UK with non-domicile status can opt to claim remittance basis and not be taxed on their overseas income as long as it is not remitted to the UK.
*Assessable on worldwide income (AUS) – Individuals who are ‘temporary’ resident will also be taxable on income earned from employment or services performed overseas whilst temporary resident.
The UK and Australian Tax Systems: An Overall Comparison
Determining which country has the more competitive tax system is no easy task.
Although income tax is generally lower in the UK (due to the progressive tax bandings), the Australian system includes a considerably lesser Medicare tax in comparison to the UK’s National Insurance rates. What’s more, where Australia allows a 50% discount on net taxable Capital Gains, the rate at which Capital Gains tax is payable in the UK may be under half of what individuals could be liable to pay in Australia (if their annual income exceeds the top tax bracket in Australia).
In addition, establishing whether an individual is an ‘Australian’, ‘foreign’ or ‘temporary’ tax resident of Australia, or their ‘domicile’ status when tax resident of the UK, heavily dictates their tax liability due at the end of the tax year.
Since 1978, Australia’s tax system has operated with no inheritance tax –which saw Australia as the first developed country to abolish death duties. In stark contrast, the UK still maintains an aggressive tax rate of 40% above the inheritance tax threshold. It is evident that, where an individual’s assets equate to more than £325,000 on death, the Australian tax system is significantly more attractive.
As the tax systems in the UK and Australia are extremely different, it requires in-depth analysis to understand how each system operates and the implications which might then present for an individual on a case-by-case basis.
If you require any advice or assistance with UK or Australian personal tax, we are here to help. Simply send us an email at the address below or fill in our contact form to arrange a free initial consultation.
For enquiries please contact:
Ned Shelton
Director
Sheltons Accountants
N.Shelton@SheltonsGroup.com
Click here to read our blog in regard to renting out your UK property whilst living in Australia.