Australian Moving to the UK: How Do I Treat Non-UK Sourced Income?

Daniel Wilkie   |   15 Sep 2020   |   6 min read

One of the top questions we are asked by Australians who are moving to the UK, is “how am I taxed on my non-UK sourced income in the UK?”

Since a UK non-resident would only be taxed on any UK sourced income, this question is predicated on the basis that the Australian is moving to the UK on a permanent basis. A permanent move means that they are ceasing to be an Australian tax resident and instead will be considered a UK tax resident.

In general, just like Australia, the UK taxes residents on their worldwide income. This means that UK tax residents have to pay tax on any income they earn, regardless of where the income is sourced. However, there is a clause for what they consider “non-domiciled” residents, whereby taxes are instead paid on a remittance basis. Since many Australians moving to the UK would fall into the definition of a “non-domiciled” resident, this is an important question. We cover what this means below. 

Australian Tax Rules on Non-Australian Sourced Income

For comparison, let’s consider the Australian rules on residency. Most people are aware that as an Australian tax resident you are required to pay Australian income tax on income you receive, regardless of where it is sourced. However there are certain exceptions for individuals who are temporary residents. Once you cease to be an Australian resident you are only required to pay Australian income tax on income that has an Australian source.

The UK operates on a similar basis, however their exemption for “temporary” residents is measured and treated differently than Australia’s exemption.

UK Residency Rules

In general, tax residents of the UK are liable for income tax in the UK, on their worldwide income. This means that it doesn’t matter where the income is sourced, it is included in the resident’s tax return.

In the UK you are automatically considered a tax resident when either one of of the following applies:

  • You spend over 183 days in the UK during the tax year.
  • Your only home was in the UK (owned, rented or lived in for at least 91 days, with at least 30 days spent there in the tax year).

Conversely you are automatically considered a non-resident if either of the following applies:

  • You spent under 16 days in the UK (or 46 if you haven’t been classed as a UK resident for the previous 3 tax years). 
  • You worked on average 35 hours a week abroad, and spent less than 91 days in the UK, of which less than 31 days you were working in the UK.

Keep in mind that in instances where an individual would be considered dual tax residents of Australia and the UK, then the tie breaker rules in the Double Tax Agreement require consideration to determine which country has taxing rights on the different sources of income.

However, while the general rule is that tax residents are assessed on their worldwide income, there is, as indicated previously, an exception. This exception is for tax residents whom the UK considers to be “non-domiciled residents”.

Non-domiciled UK Residents

Non-domiciled residents are individuals, including Australian citizens, who are only living in the UK for the short to medium term.

A UK resident who has a permanent home outside of the UK is considered to have a domicile in that other country. This doesn’t necessarily have to be a specific, physical house, but more so that the ties to their home country mean that this country is considered to be their ‘permanent’ home. When an individual has a permanent home outside of the UK they are considered to be a “non-domiciled” tax resident of the UK.

In the UK a ‘domicile’ is typically the country in which your father permanently resided when you were born. For instance, the country in which you are a citizen by descent. However, this may not be the case if you have legitimately and permanently moved to another country, with no intention of returning to your original home country. This would mean that your ‘domicile’ changes to the new country in which you begin to permanently reside.

“Remittance” Rules on Taxes on Non-UK Sourced Income for Non-domiciled Residents

For non-domiciled residents, non-UK sourced income is treated differently depending on the total amount of the non-Uk sourced income. 

Under 2,000 Pounds

If you are a “non-domiciled” UK resident then you ignore all foreign income and gains if that income is under 2,000 pounds for the tax year and you do not bring that income into the UK. You must have a bank account in your home country, and the funds from that income must stay back in the home country instead of being transferred into the UK. If this is the case then you don’t have to do anything about your foreign income when lodging a tax return.

However, if the income you earn from overseas sources exceeds 2,000 Pounds, or you bring any income into the UK, then you must report that income in a self-assessed tax return.

Over 2,000 Pounds

When the non-UK sourced income exceeds 2,000 pounds (or the income is brought into the UK), the income can’t just be ignored. The rules under which foreign income is taxed in the UK, for non-domiciled residents, is the ‘remittance basis’. This essentially means that you have a choice on how you treat the reported income.

Choice of how UK Taxes are Sorted Out

Choice 1: You can Simply Choose to Pay UK Taxes on the Income. 

If you choose this option then you will be assessed for income tax on your foreign income. If tax is paid on the Australian sourced income (or may be taxed elsewhere if it is income relating to another country), there are a number of rules that ensure you are not taxed twice on this income. In some cases this will result in a reduction to your UK taxes. 

Choice 2: You can Claim the ‘Remittance Basis’.

If you choose to be taxed on the remittance basis, then you only have to pay tax on any of the income that you actually bring into the UK.

However, in a trade off for this consideration, you will lose any tax-free allowances for income tax and capital gains. You will also be required to pay an annual charge if your residency in the UK exceeds a certain timeframe. This annual charge is 30,000 pounds if you have resided in the UK for at least 7 of the past 9 years, or 60,000 pounds if you have resided in the UK for at least 12 of the past 14 years.

The remittance basis may be a great option if you are living in the UK for less than 7 years, however, beyond this you would need to assess your situation to determine your optimal position.

Seek Appropriate Advice for your Situation

Since the remittance basis can get complicated it is best to talk to a UK tax adviser for specific advice. You need to consider your own position, your long term intentions, and where you hold your investments, including rental properties, that are generating taxable income.

See here for a brief comparison of the Australian and UK tax system.

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Residency in a Global Pandemic: Advising the Returning Australian

Matthew Marcarian   |   8 Sep 2020   |   1 min read

Our principal, Matthew Marcarian, was recently published in Australia’s leading tax journal, Taxation in Australia (run by the Tax Institute), with his article titled “Residency in a global pandemic: advising the returning Australian“.

A brief overview of the tax residency issues that have arisen with COVID can be read here.

In his article Matthew breaks down the intricacies of the rules regarding tax residency for expats who have returned to Australia during this global pandemic.

If you are an expat who has returned to Australia due to the pandemic you may have to seek advice on your tax position.

Matthew has over 20 years of international tax experience advising clients on cross border tax matters. His depth of knowledge in this area will give you the clarity you need to understand your tax obligations as a result of returning to Australia.

Contact us today to discuss your residency status.

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JobKeeper Update

Daniel Wilkie   |   3 Sep 2020   |   5 min read

The government has announced an extension to JobKeeper beyond the initial 28 September conclusion. This extension means it is available to all eligible businesses (including the self-employed) until March 28 2021.

However, JobKeeper is not simply carrying on in its current form. Businesses who have been claiming JobKeeper subsidy may not continue to be eligible. New businesses who were not previously eligible may become eligible in the September quarter and be able to apply for the extended JobKeeper period.

Keep in mind that due to the ongoing pandemic, changes may continue to be made up to, and even beyond the time, that the new JobKeeper payments kick in.

Here’s an overview of the changes that have been announced:

Qualification Criteria

To receive JobKeeper payments after 28 September the business will have to show that their actual turnover has experienced a significant decline for the September 2020 quarter. This differs to the original requirement of simply having to have a reasonable expectation of decline.

This means that a qualifying business must actually have a turnover that, in their September 2020 quarter, is at least 30% less than the turnover they had in their September 2019 quarter.

Businesses with an aggregate annual turnover of more than $1 billion must actually have a turnover for their September 2020 quarter that is at least 50% less than their September 2019 quarter.

To continue to claim the JobKeeper payments for the March 2021 quarter, the business will have to confirm the ongoing impact of loss of income in the December 2020 quarter. This means they must actually have the lower income in the December 2020 quarter when compared to their December 2019 quarter, in order to continue to claim JobKeeper in the March 2021 quarter.

Businesses who were not previously claiming JobKeeper, but who are eligible in the September 2020 quarter based on their actual turnover, and meet all the other original qualifying tests, may apply as new recipients.

As occurred with the original JobKeeper payments, the Commissioner will have the discretion to set alternative tests, where comparing the actual turnover to the equivalent period in the prior year, is not appropriate.

Eligible Employees

Employees that will be included in the extended JobKeeper subsidy must meet the following criteria:

  • Currently employed by the employer (including being stood down or re-hired).
  • Were a full-time, part-time, of fixed-term employee at 1 July 2020 OR
  • Were a long-term casual who was employed for over 12 months on a regular basis, and is not employed as a permanent employee elsewhere. 
  • Over 18 years of age on 1 July 2020 (or an independent 16 or 17 year old who was not studying full-time). 
  • Australian resident (as defined in the Social Security Act 1991) or
  • New Zealand citizen living in Australia under the Special Category Subclass 444 visa (which is the Visa that automatically applies to New Zealand citizens who come into Australia).
  • Were not being paid parental leave or Dad and Partner pay under the Paid Parental Leave Act 2010.
  • Were not being paid under a worker’s compensation payment due to a total incapacity to work.

An individual who has multiple jobs can only claim JobKeeper from one employer. They cannot elect to claim JobKeeper in a position where they have been a regular casual for more than 12 months, if they are eligible for JobKeeper with another employer for whom they are permanently employed.

Self-employed individuals will be eligible to continue to receive JobKeeper as long as they meet the original requirements and the relevant turnover test, and are not permanently employed by another employer.

Payment Amount

December Quarter:

Under the extended JobKeeper payments, the fortnightly payment will be reduced from $1,500 to $1,200. This is for any employee who was employed for at least 20 hours or more a week.

For employees who worked less than 20 hours a week, payments will be reduced to $750. Business participants who worked less than 20 hours a week will also be paid at these lower rates.

March Quarter:

For the March 2021 quarter the JobKeeper payments drop to $1,000 a fortnight for all eligible employees who worked for at least 20 hours a week.

Employees who worked less than 20 hours a week will be paid out at $650 a fortnight.

The working hours used to determine whether an employee worked more or less than 20 hours a week are the 4 weeks prior to 1 March 2020. However, this test period may not always be relevant since the extension now includes permanent employees who were employed as of 1 July 2020, and casuals who meet the 12 month employment criteria by 1 July 2020.

A business may apply for the Commissioner’s discretion for alternative tests where an employee or business participant’s usual working hours were different in the qualifying period than they would normally have been (for example if they were on voluntary leave during the bushfires, or not employed in the previous quarter).

Further Information About JobKeeper

Like the original JobKeeper program, JobKeeper is a wage subsidy that is paid to eligible employers in order to help cover the cost of wages that they are paying to their employees.

The JobKeeper income received counts as taxable income to the business, just as the wage payments made count as a tax deductible expense to the business. Any JobKeeper payments made to the business via claims based on an eligible business participant are also included as taxable income for the business. There is no GST on this income and it does not count as turnover for GST purposes.

The Treasury’s fact sheet on the JobKeeper extension can be found here

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