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Alan’s Top 12 Tips for 2018 Tax Returns

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As we tick over into the new Australian tax year your thoughts might start turning to the completion of your 2018 Australian tax return.

At least they do in the minds of registered tax agents!

Here are my top 12 tips for those of you who have UK and Australian tax returns to prepare for 2018. They should be particularly helpful for those of you who moved to Australia for the first time in the year to 30 June 2018, although others who arrived earlier may find the list useful.

  1. Know when you became a tax resident of Australia, and when you ceased to be a tax resident of the UK.   This is important, as the date on which your tax residency status changes will affect what income is taxable, and where it is taxed.   Remember that if you are a tax resident of Australia your worldwide income is taxable in Australia – subject to tax tip number 2.
  2. Confirm your visa status in Australia – and whether you are in a relationship with an Australian.   This is as equally important as your residency status: if you are the holder of a temporary residency visa and are not in a relationship with an Australian (or – technically – what is known as an eligible New Zealand citizen) your tax affairs are likely to be a lot simpler, as your non Australian source income is not taxable in Australia.
  3. Know your tax return filing deadlines.  The late submission of a UK tax return will trigger an automatic late filing penalty.   The late submission of an Australian tax return probably won’t, but you will have a red mark against your name.   As a general rule, file the UK tax return electronically to get an extra 3 months, and use a registered tax agent in Australia to get an additional 6+ months to lodge your Australian tax return.
  4. Unless you can access the benefits of tax tip number 2 remember that certain income can be taxable in the UK and in Australia – most commonly rental income from a let property in the UK when the property is owned by a tax resident of Australia.   The upside is that any tax you pay in the UK is creditable against the Australian tax liability on the same income, known in Australia as a Foreign Income Tax Offset.
  5. In Australia the rules for claiming tax deductions on rental property are different to the UK, so if your UK rental income is taxable in Australia you should be thinking about having a depreciation report prepared.   This report will set out the assets that can be depreciated (including the cost of the building in the form of a capital works deduction, if construction of the property commenced after 22 August 1992).  Contact us for details of the specialist firm of Quantity Surveyors with which we work – they have a UK office and their fees are tax deductible on your Australian tax return.
  6. If you can’t access the temporary tax resident exemptions discussed at tax tips number 2 complete your UK tax return first, so you can identify whether there is any tax payable that can be claimed as a tax credit on your Australian tax return in respect of any income that is taxable in both countries.
  7. If you can access the temporary tax resident exemptions you will still need to determine the amount of your foreign income so it can be included on your Australian tax return as what is called “Target Foreign Income” (TFI).   For temporary tax residents TFI isn’t taxable in Australia, but it can affect your entitlement to certain benefits payable through Centrelink.
  8. Make sure you include all income that is properly taxable on your UK and Australian tax returns: in Australia those of us who are tax agents can access what is called a Pre Filling Report which details information the ATO has on its records about you – most usually information about salaried income (gross pay, PAYG withheld), interest income where your Tax File Number has been provided to the bank, and private health insurance.   If you want to lodge your tax return unassisted the same pre-filling information is usually available through the ATO’s myGov (allow a few weeks from the end of the tax year for information to appear).
  9. If you have to complete a UK tax return remember to complete the Residence supplement.   Once you are no longer a resident of the UK this supplement is the means by which you claim the UK personal allowance, to which most migrants to Australia remain entitled and which reduces the amount of UK source income subject to UK income tax.   Note that you cannot lodge the Residence supplement electronically through the HMRC web site: you must lodge a paper tax return by 31 October following the end of the tax year, buy commercial tax return software, or use a firm of tax accountants – such as us – who prepare and lodge UK tax returns electronically.
  10. Consider using a registered tax agent (such as us) to file your Australian tax returns.   As noted at 3 above you get more time to lodge the return.   Plus our fees are tax deductible, and we will probably have a better idea of what can and what shouldn’t be claimed as a tax deduction on your tax returns.  In the first year or two in which you are living in Australia it frequently makes sense to use someone who has seen people before who are in your situation.   And we can assist with your UK tax returns, so you only have to deal with one firm of accountants – which makes dealing with tax a lot easier for you.
  11. Looking forward: consider taking out suitable private health insurance if your income will trigger a liability to the Medicare Levy Surcharge.   The cost of private health cover can be less than the Surcharge payable to the ATO.
  12. If you have sold your UK property while living in Australia – or are considering doing so – remember that there is an obligation to lodge a Non Resident Capital Gains Tax return with HM Revenue within 30 days of the sale completing.   The UK tax return lodged for the year of the sale will ask for the reference number associated with the NRCGT return – so don’t forget to file it!

We hope this helps.

Good luck completing your 2018 tax returns, and if you need any help – or would like an initial freebie chat to discuss how we might help – please feel able to contact Collett and Co Tax.

Our fees are fixed in amount and will be agreed before you have any commitment to us.

Happy 2018 Tax Time!

Living in Australia: Do You Need to Lodge a UK Tax Return?

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A question asked regularly by those who are moving to Australia is whether there is a need to lodge a UK tax return.

HM Revenue & Customs – or HMRC – issues tax returns in April each year to individuals who are already in the UK Self Assessment tax system.

Once HMRC has issued a tax return or a Notice to File to a taxpayer the return must be lodged by the due date if a late filing penalty is to be avoided.

Note: The due date for lodging a UK tax return is usually:

  • 31st of October following the end of the tax year if submitting a hard copy (ie paper) tax return
  • 31st of January following the end of the tax year if submitting the tax return electronically

Thus, the due date for lodging a 2018 personal tax return with HMRC electronically will be the 31st of January, 2019.

It is known for HMRC to agree to withdraw the request a Self Assessment tax return if all income is being taxed under PAYE, or if the taxpayer has departed the UK to live overseas – ie became non tax resident in the UK – before the start of the tax year under review and has no ongoing source of income that remains subject to tax in the UK even though non resident.

The most commonly encountered UK source of income that remains subject to tax in the UK when an individual is not UK resident is rental income from a property located in the UK.

So what happens if you are not in the Self Assessment regime?

Most taxpayers in the UK are not required to lodge a tax return because their income is taxed through the UK Pay As You Earn (PAYE) system.

However, individuals with the following circumstances should take active steps to enrol in the UK’s Self Assessment regime, and to lodge a UK tax return for the previous UK tax year:

  • You were self-employed
  • You received £2,500 or more in the form of untaxed income after allowable deductions, such as from renting out a property, or in the form of dividends or interest from savings and investments
  • You received dividends or interest of £10,000 or more from savings or investment income
  • You made a capital gain from selling investments such as shares, a second home or other chargeable assets of an amount in excess of the Capital Gains Tax Annual Exemption
  • You were a company director – unless it was for a non-profit organisation (eg a charity) and you didn’t get any pay or benefits, like a company car
  • Your income (or your partner’s income) was more than £50,000, and one of you claimed Child Benefit
  • You received income from abroad on which you need to pay UK tax (eg from a rental property located outside the UK)
  • You lived abroad and had a UK income
  • You received dividends from shares and you are paying income tax at the higher or additional rate
  • Your total income was over £100,000
  • You were a trustee of a trust, or of a registered pension scheme

HM Revenue has an online tool to check whether there is a need to enrol in the Self Assessment system and to lodge a UK tax return here.

The most commonly encountered circumstance where a person living overseas is required to complete a UK tax return is where a UK located property has been retained and is being let. For such individuals the tax return will include the Property and Residence supplements.

It should be noted that the Residence supplement cannot be lodged through the HMRC website – options include submitting a paper return by the 31st of October following the end of the tax year, buying commercial software that allows for the preparation and e-submission of the supplement, or instructing a firm of tax accountants.

If you are uncertain whether you have to complete a UK tax return, or have a need to enrol in the UK Self Assessment system we invite you to contact Collett and Co Tax to discuss how we might help.

We will be pleased to have an initial free no obligation conversation to discuss your tax situation, whether there is a need to submit a UK tax return, and how we might help.

Our fees are fixed in amount, and are agreed in advance of you having a commitment to us.

Living in Australia and Selling a Property in the UK? Watch the UK’s Capital Gains Tax (CGT) Regime for Non Residents

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Since the start of the 2015/16 tax year the UK has required capital gains tax to be considered when a non UK resident individual sells a residential property in the UK.

Before the 6th of April, 2015 no capital gains tax was payable.

Key points are:

  • In calculating the charge to UK CGT the tax computation has reference to the property’s market value as at the 6th of April, 2015.
  • However, taxpayers are given the option to time apportion the gain since the property was acquired – ie over the whole period of ownership (pre-6th April, 2015, and post that date), or to calculate the gain (or loss) over the whole period of ownership of the property.
  • Non UK resident individuals (and trustees) are given the same CGT Annual Exemption as is available to UK residents: for UK tax year 2017/18 this is £11,300 for individuals and £5,650 for trustees.
  • Non UK resident individuals pay CGT at 18% or 28% upon the disposal of a residential property in the UK, depending on the level of their other income and the amount of the gain.
  • Principal Private Residence (PPR) relief continues to be available.
  • Under the new regime PPR relief is only available (determined on a year to year basis) if the individual making the disposal is tax resident in the same country as the property for that tax year, or the individual meets a “90 day rule”. To meet the “90 day rule”, the individual must have spent at least 90 midnights in the property in the tax year for which the PPR relief is claimed.
  • This means that non UK resident individuals who spend 90 nights a year or more in the UK are able to sell their property free of UK CGT. However – and importantly – such individuals will need to be careful that they do not then become UK resident for general tax purposes.
  • In particular, such individuals will need to have reference to the UK’s Statutory Residence Test, under which an individual’s UK tax residency status is considered based on the time spent in the UK as well as a “sufficient ties” test (one of which is a 90 day test).
  • The new occupancy test does not apply for any year that a spouse or civil partner is UK resident. PRR applies for that year in the normal way in that relief is given to the extent that the property is the taxpayer’s only or main residence.

Importantly, a non resident taxpayer selling a residential property in the UK is required to report the disposal of the property on a Non Resident CGT (NRCGT) return within 30 days of the day after the date the property sale is completed (i.e. the date when title is conveyed).

Any CGT owing is also to be paid to HM Revenue within the same timeline, unless the taxpayer is already within the UK’s self assessment (SA) system.

Most who are non UK resident and who are letting a UK property will already be lodging UK tax returns each year under the SA system.

If the taxpayer is already within the UK’s SA system, s/he will still need to report the disposal on a NRCGT return within 30 days, with payment of tax arising then to be made as part of the normal end of year tax payment to HMRC.

The NRCGT return is lodged online through the HM Revenue web site.

Taxpayers who are already within the SA system report the disposal on the NRCGT return within 30 days of the conveyance and on the SA tax return for the tax year in which the property is sold.

More specifically, the relevant SA tax return is for the year when the disposal took place, remembering that a disposal for CGT purposes takes place when the contract to sell the property is agreed. Thus, if unconditional contracts of sale are exchanged on the 31st of March, 2018 and the sale of the property completes on the 1st of May, 2018, the relevant SA return is for the tax year ended the 5th of April, 2018, not 2019.

All disposals have to be reported to HMRC on a NRCGT return, whether or not there is a tax liability.

The late lodgment of a NRCGT return can be expected to trigger a late filing penalty.

We invite all who have sold – or are planning to sell – a residential property in the UK to contact Collett and Co Tax to discuss how we might help, including preparing capital gains tax computations under the tax rules of the UK and Australia to identify whether there is any capital gains tax payable in either or both countries.

Any CGT payable in the UK should be creditable against the CGT payable in Australia on the same disposal.

If you would like to discuss your situation and plans with a tax consultant who is familiar with tax in the UK and in Australia complete our enquiry form.

We will be pleased to have a free initial discussion to explore your situation, and to explain how we might help.