Category: Australia – taxation for expats

It is now more important than ever to carefully consider tax implications when disposing of Australian residential  property (real estate) as a foreign resident. Over the last 6 years Australia has introduced new capital gains tax rules for foreign residents.

In this article, we consider the potential tax consequences of selling Australian residential property as a resident of the UK. The article is split into two segments:

1. Australian tax implications, and

2. UK tax implications.

Please note, the article below is a brief summary of tax legislation in both the UK and Australia. If you are planning to dispose of Australian property as a foreign resident, it is recommended that you seek professional advice specific to your situation and not rely solely on this article.

Australian Capital Gains Tax Implications

In Australia there are two capital gain tax (CGT) reliefs commonly utilised when disposing of residential property.

The first is the ‘main residence exemption’. The main residence exemption means there will generally be no tax liability upon sale of your main residence. Where the dwelling was your main residence for only part of the ownership, the full exemption is proportioned according to the number of days it was not your main residence. Please note, the exemption will remain available where the main residence was vacated and not rented out (and no other main residence election was made).

However, since 30 June 2020 foreign residents who have sold property have no longer been able to benefit from the exemption, unless they have satisfied the requirements of the life events test, covered below.

In order to qualify for the ‘life events test’, both of the following must be true:

  • You were foreign resident for tax purposes for a continuous period of 6 years or less
  • During that period, one of the following occurred:

– you, your spouse or your child under 18 had a terminal medical condition
– your spouse or your child under 18 died
– the CGT event happened because of a formal agreement following the breakdown of your marriage or relationship.

The second frequently utilised capital gains tax relief in Australia is the capital gains tax discount. When you sell or disposes of an asset, you can usually reduce the capital gain by 50% if you owned the asset for at least 12 months.

As with the main residence exemption however, the capital gains discount has now been removed for foreign residents who acquired assets after 8 May 2012.

Where foreign residents either acquired the asset on or before 8 May 2012 or had a period of Australian residency after 8 May 2012, they may apply the discount to part of their capital gain. The discount is then calculated using the ATO worksheet, attached here.

Upon disposing of Australian property and once the capital gains tax calculation has been finalised, foreign residents are liable to tax on their capital gain at a rate of 32.5%.

UK Capital Gains Tax Implications

As a resident of the UK you are normally liable to UK tax on your worldwide income and gains arising in the tax year, this is known as the arising basis of taxation. Therefore, your Australian residential property gain will normally be taxable in the UK.

Until 05 April 2023 the UK capital gains tax allowance is £12,300. However, from 6 April 2023 this is reduced to £6,000 and then again to £3,000 from 6 April 2024. Any taxable gain over the relevant allowance will be liable to residential capital gains tax rates, currently standing at 18% and 28% (depending on the size of the gain and marginal rate of income). Unlike the new rulings for foreign residents in Australia, the proportion of the gain which relates to the period of time where the property was your main residence will be exempt from the UK taxation. This is known as principal private residence relief (PPR relief).

However, where you are resident but non-domiciled in the UK, you can elect to be taxed in the UK on your UK income and gains alone, and pay UK tax on foreign income and gains only if these are remitted (brought) to the UK. This is known as the remittance basis of taxation. Electing to use the remittance basis however, means the loss of your tax-free personal allowances and capital gains tax exempt amount for the year the election is made. In many scenarios, the individual is selling the Australian property in order to purchase property in the UK. In this instance the capital gain would be remitted to the UK and thus UK capital gains tax would apply. Therefore, if you are entitled to use the remittance basis, it is important to calculate the most tax efficient method of taxation.

Where you are taxed on an arising basis (worldwide income) and you’ve paid tax in Australia on your Australian property gain, you may be entitled to a UK foreign tax credit.

Where a ‘UK resident’ has property gain from Australia, the Australia-UK double tax treaty in principle becomes relevant. However, it generally has no impact on the application of domestic law in Australia or the UK.

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As evident above, ongoing changes to the rules for foreign residents selling Australian property means it is now crucial to understand the tax implications of disposing Australian property, particularly whilst resident of the UK.

If you require any advice or assistance with UK or Australian capital gains 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

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Are you moving to the UK and renting out your property in Australia?

Below we have covered some popular Australian and UK tax issues and questions that arise when becoming a non-resident landlord of Australia.

Will I be taxed on my Australian rental income in Australia?

Non-residents of Australia are generally taxed on income derived directly or indirectly from sources in Australia (subject to the interaction of a double tax agreement). As a result of this, when you are tax resident of the UK you can be subject to Australian tax on rental income derived from an Australian source.

Gross rental income will be included as assessable income in your Australian tax return. You will then be entitled to a deduction for tax-deductible expenses incurred from renting out your Australian property. Where your deductions exceed the rental income, that loss may be offset against your other taxable Australian sourced income, or carried forward to the following tax year. Where you have generated a profit, you will be subject to tax at 32.5 percent on the first $120,000 (AUD) of net income, and then rates ranging from 37 percent to 45 percent for the remaining income.

Will I be taxed on my Australian rental income in the UK?

As a resident of the UK you are normally liable to UK tax on your worldwide income and gains arising in the tax year. Therefore, your Australian rental income will normally be taxable in the UK.

However, where you are resident but non-domiciled in the UK, you can elect to be taxed in the UK on your UK income and gains alone, and pay UK tax on foreign income and gains only if these are remitted (brought) to the UK. This is known as the remittance basis of taxation. Electing to use the remittance basis however, means the loss of your tax-free personal allowances and capital gains tax exempt amount for the year the election is made. Therefore, if you are entitled to use the remittance basis, it is important to calculate the most tax efficient method of taxation.

Where you are taxed on an arising basis (worldwide income) and you’ve paid tax in Australia on your Australian property income, you may be entitled to a UK foreign tax credit.

Where a ‘UK resident’ has property income from Australia, the Australia-UK double tax treaty becomes relevant.

What expenses can I claim on my Australian property income in the UK?

If this is your first experience of being a landlord whilst resident of the UK, you may be unsure about what expenses are tax deductible. HMRC (UK equivalent to the ATO) provide that for an expense to be allowable for tax purposes, it should be incurred wholly and exclusively as a result of renting out your property. Typical expenses include building insurance, estate agent fees and utility bills (only if not reimbursed by tenants).

In some instances, what you assume are revenue expenses may in fact be ‘capital expenses’. For example, improving or upgrading something that was existing. Capital expenses are not allowable and cannot be claimed against rental income, however you might be able to set them against capital gains tax if you sell the property in the future. You should seek professional advice if you’re unsure on the tax treatment of your property expenses.

Unlike in Australia where mortgage interest is fully tax-deductible, since April 2020, you have no longer been able to deduct any mortgage expenses from taxable rental income whilst resident in the UK. Instead, mortgage interest is used as a tax reducer, where you receive a tax credit based on 20 percent of mortgage interest payments. For example, if you make mortgage interest payments of £5,000 per year, you will receive a tax credit of £1,000 to deduct from the liability incurred on your property income.

Will I receive my Australian personal allowance as resident of the UK?

If you are a non-resident for the full Australian income year (01 July to 30 June), you can’t claim the tax-free threshold. This means you pay tax on every dollar of taxable income you earn from Australia.

If however, you are an Australian resident for tax purposes during the income year, you will receive a part-year tax-free threshold. This may be relevant in your year of exit from Australia.

How do I file my UK self-assessment tax return?

As resident of the UK, when you are in receipt of overseas income it automatically places you into the UK self-assessment regime. The return will be used to calculate any UK tax liability arising from your Australian property income and any additional relevant income.

The tax return deadline in the UK is 31 January following the tax year end (31 October for paper returns). Automatic late filing penalties will apply after the deadlines have passed.

Ways in which you can file a UK tax return:

  • Send your tax return by post
  • Use commercial software
  • Use HMRC online services
  • Get help from a professional

How do I file my Australian tax return?

As non-resident of Australia, the due date for your tax return remains 31 October following the end of the tax year. Non-residents may obtain an extension to 15 May of the following year if they are registered with a tax agent, i.e. tax-year end 30 June 2022 would be due 15 May 2023.

Ways in which you can file an Australian tax return whilst overseas:

  • Lodge your tax return online with MyTax
  • Lodge your return by post
  • Lodge your tax return with a registered tax agent

Contact Us

If you need advice or assistance with your UK or Australian tax obligations, we are here to help. Simply send us an email to arrange a free initial consultation.

For enquiries please contact:
Ned Shelton
Director
Sheltons Accountants
N.Shelton@SheltonsGroup.com

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Are you moving to Australia and renting out your UK property? If so, you will be classified as a ‘non-resident landlord’ by HM Revenue and Customs (HMRC).

Below we have covered some of the popular UK tax issues and questions that arise when becoming a non-resident landlord:

How do I stop my estate agent or tenant from deducting UK tax at source?

If you have been determined as a non-resident landlord of the UK, your letting agent or tenant will deduct basic rate tax (20%) from your rent. Once the tax year is complete, your estate agent or tenant will provide you with a certificate certifying how much tax they have deducted in the relevant tax year.

As a landlord, cash flow is important, therefore it’s likely you would prefer to receive your rent in full and pay any tax due through your UK self-assessment tax return.

The way in which you can receive your rent in full, prior to any taxation, is to file a non-resident landlord form (NRL1). Once the form has been approved, HMRC will inform your letting agent or tenant to stop deducting tax from your rent. From there on, you will receive your rent in full without UK taxation. Any tax deducted earlier in the year will be refunded on your next rental statement.

However, it is worth noting that HMRC will only approve your NRL1 application if your taxes are up to date. For example, you have no outstanding tax or tax returns due.

What expenses can I claim on my UK property income?

If this is your first experience of being a landlord, you may be unsure about what expenses are tax deductible. HMRC iterate that for an expense to be allowable for tax purposes, it should be incurred wholly and exclusively as a result of renting out your property. Typical expenses include buildings insurance, estate agent fees and utility bills (only if not reimbursed by tenants).

In some instances, what you assume are revenue expenses may in fact be ‘capital expenses’ for example, improving or upgrading something that was existing. Capital expenses are not allowable and cannot be claimed against rental income, however you might be able to set them against capital gains tax if you sell the property in the future. You should seek professional advice if you’re unsure on the tax treatment of your property expense.

Since April 2020, you have no longer been able to deduct any mortgage expenses from taxable rental income. Instead, mortgage interest is used as a tax reducer, where you receive a tax credit based on 20% of mortgage interest payments. For example, if you make mortgage interest payments of £5,000 per year, you will receive a tax credit of £1,000 to deduct from the liability incurred on your property income.

Will I be taxed on my UK rental income in Australia?

Whether you’re taxed on your UK rental income in Australia will depend on the type of tax resident you are. There are three main types of residents in Australia: Australian resident, foreign resident and temporary resident.

If you’re classified as a ‘foreign resident’ or ‘temporary resident’ working in Australia, you generally don’t need to declare income you receive from outside Australia in your Australian tax return. Therefore, as long as you remain a ‘foreign resident’ or ‘temporary resident’, you will not be taxed on your UK rental income in Australia.

However, in the event that you’re an ‘Australian resident’ for tax purposes, you must declare all income you earned both in Australia and overseas. In this instance, UK property income must be added to your Australian tax return. If you’ve paid tax in the UK on your UK property income, you may be entitled to an Australian foreign income tax offset.

Where an ‘Australian resident’ has property income from the UK, the Australia-UK double tax treaty becomes relevant.

Will I receive my UK personal allowance as resident of Australia?

When non-resident of the UK, it’s only in certain circumstances that you will get a personal allowance of tax free UK income each year. These include the following:

• you hold a British passport
• you’re a citizen of a European Economic Area (EEA) country, or
• you’ve worked for the UK government at any time during that tax year.

However, under the double tax treaty between the UK and Australia, it’s likely as a resident of Australia that you will be entitled to the UK personal allowance. Thus, only the rental income over the UK personal allowance will be taxable in the UK.

How do I file my UK self-assessment tax return from Australia?

Regardless of whether you’re a resident of Australia, renting out a UK property automatically enters you into the UK self-assessment regime. The return will be used to calculate any tax liability arising from your UK property income and any additional UK taxable income.

The same Tax Return deadlines apply to non-residents as they do to UK residents – 31st January following the tax year end (31st October for paper returns). Automatic late filing penalties will apply after the deadlines have passed.

As a non-resident you are unable to use HMRC’s online services to file your return. Instead, you need to:

• Send your tax return by post
• Use commercial software
• Get help from a professional

Contact Us

If you need advice or assistance with your UK or Australian tax obligations, we are here to help. Simply send us an email at the address below 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 where we compare the UK and Australian Tax systems

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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:

  • Earnings are over £100,000 in a tax year
  • In receipt of non-UK sourced income
  • In receipt of property income
  • In receipt of taxable savings, investments and dividends
  • Claiming income tax reliefs
  • Need to pay capital gains tax
  • Self-employed or partnership income
  • Liable to high income child benefit charge
  • In receipt of taxable income which has not yet been taxed

 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:

  • £0 to £12,570 (personal allowance) – 0%
  • £12,571 to £50,270 (Basic rate) – 20%
  • £50,271 to £150,000 (Higher rate) – 40%
  • Over £150,000 (Additional rate) – 45%

Australia operates progressive rates of income tax which include:

  • $0 to $18,200 – Nil
  • $18,201 to $45,000 – 19%
  • $45,001 to $120,000 – 32.5%
  • $120,001 to $180,000 – 37%
  • $180,001 and over – 45%

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:

  • Up to and including 12 February, the payment date is 21 March
  • From 13 February to 12 March, the payment date is 21 April
  • From 13 March, the payment date is 5 June

If the tax return is not due by 15 May, the payment will be due on the later of 21 days after the:

  • Relevant lodgement due date, or
  • Notice of assessment is deemed received
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.

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