A common question is whether it is necessary to cash in all your investments when you emigrate to Australia. The answer is that it is not necessary – but the tax rules in Australia might make it sensible to do so.
It is important to be aware of the following tax implications:
Any dividends from shares and distributions from unit trusts will be liable for income tax in the UK. You will still have a personal allowance even when you are no longer resident here.
The investment income will also be taxed in Australia but any income tax paid in the UK can be offset to avoid double taxation.
Non-residents do not pay UK capital gain tax as long as they remain abroad for at least 5 complete tax years. A good tip might be to delay selling an investment until at least the 6 April following your departure from the UK.
Australian capital gains tax is payable only on the increase in value between arriving in Australia and when the investment is sold. It is therefore important to get a written valuation very close to the date of departure. The amount of capital gains tax payable depends on when the sales takes place so professional advice is important.
Private company shares are subject to separate rules and professional advice is very important.
This is a measure to discourage Australians from investing in foreign investments in order to shelter income from income tax. It subjects investments, which accumulate over time but do not actually pay an income on a regular basis, to income tax. The rules cover Foreign Investment Funds (FIFs) such as shares and mutual funds (e.g. Unit Trusts) as well as Foreign Life Policies (FLPs). UK personal pension funds are considered to be FIFs and are therefore affected but employer sponsored pensions are not affected.
Tax is charged at your marginal rate on any increase in value between 30 June in the current year and 30 June in the previous year.
Timing of a disposal is important as the liability to this tax is only on assets held on 30 June.
A high earner in Australia could be paying tax on foreign investment funds at 46.5% and probably would not want to continue holding such an investment.
Life assurance policies and investment bonds can also be liable to another Australian tax, known as s26AH, when they are encashed.
There is no inheritance tax in Australia. However, UK domiciled individuals are liable to inheritance tax in the UK on their worldwide assets. It is a complicated and lengthy process to change your domicile from the UK to Australia, and owning assets here can make it more difficult.
Currently the rate of UK inheritance tax is 40% on worldwide assets above the annual allowance (£325,000 in 2009/2010). No tax is payable on transfers between spouses and civil partners.
Mike Wilson is a director of Scottsdale Consulting Ltd, having entered Financial Services in 1985 he specialises in pensions and investments as well as expat services and QROPS schemes. He has a wealth of experience in advising clients and in training other financial advisers.