With the United Kingdom preparing to abolish the non-domiciled (“non-dom”) tax status from April 6, 2025, many Australians are considering the tax impact of returning home. See our article Australians Living In The UK: How The New “Non-Dom Tax” Changes May Affect You.

Whether you make the decision to return home before the tax changes take place, or you remain in the UK until after the new laws impact you, when you return home it is important to manage your UK tax exit obligations.

Simple Checklist For Australians Returning From The UK

1. Confirm UK tax residency status and apply for split-year treatment (if eligible).

2. File a final UK tax return and settle any outstanding liabilities.

3. Plan capital gains tax-efficiently (consider selling non-UK assets after leaving to avoid UK CGT).

4. Transfer UK savings and close unnecessary UK bank accounts.

5. If keeping UK property, register with HMRC’s Non-Resident Landlord Scheme and  ensure that you continue to file UK tax returns as a non-resident.

6. Seek advice on Australian taxes and ensure your Australian tax return is prepared in accordance with Australian tax residence rules, including declaring worldwide income.

7. Review foreign asset disclosures and pension tax treatment with the ATO.

8. Be mindful of the 10-year UK IHT rule for former UK residents9- Use the UK-Australia Double Tax Agreement to mitigate double taxation.

The Key Differences For Australians Returning To Australia Before vs After The UK’s New Non-Dom Rules (April 6, 2025)

The timing of departure from the UK will significantly impact an Australian’s tax obligations in both the UK and Australia. The key differences arise in capital gains tax (CGT), inheritance tax (IHT), and foreign income treatment.

1. UK Capital Gains Tax (CGT) Implications On Worldwide Assets

The Key Difference for CGT purposes is that leaving before April 2025 allows Australians to sell non-UK assets CGT-free under the remittance basis. Individuals leaving after April 2025 may still owe UK CGT on global assets if they were UK residents for more than 4 years.

2. UK Inheritance Tax (IHT) Exposure

The key difference for IHT exposure is that before April 2025 a non-domiciled resident does not have their worldwide assets caught in UK IHT rules when they leave the UK. Leaving after April 2025 can expose them to UK IHT for up to 10 years if they were a UK tax resident for a decade or more.

3. UK Tax On Foreign Income And Remittances

Non-domiciled individuals who leave before April 2025 avoid retrospective taxation on foreign income and remittances. Leaving after April 2025 could mean more UK tax on past foreign income, depending on transition arrangements.

4. Remittance Of Foreign Income Into The UK

Prior to 2025 a non-domiciled resident would avoid UK taxes on foreign income if they did not bring this income into the UK.

Under the new UK tax rules all foreign income is taxable in the UK after the first four years, regardless of whether the income is brought into the UK or not. It is important to ensure that your Australian income isn’t brought into the UK prior to 6 April 2025 if you want to avoid UK taxes on that income.

After 6 April 2025 you may be exempt from paying UK taxes under the four-year exemption rule. If you are not exempt under this rule you may be able to bring previously untaxed foreign income into the UK under a reduced tax rate if a decision to designate this income for remittance into the UK is made before the end of the 2028 financial year. Foreign income earned from 6 April 2025 (other than income earned under the 4 year exemption rule) will be taxable, regardless of whether it is remitted into the UK or not.

5. UK Property And Rental Income

The rules remain similar in that UK rental income will continue to be taxable in the UK as the country of source, as well as being taxable in Australia as the country of residence. However, the CGT rules may be stricter for UK purposes for former UK residents, meaning that the key difference is that an individual returning to Australia may see better CGT outcomes if they sell their UK property before they leave. As this will depend on specific factors, it is important to obtain correct tax advice for your specific situation prior to making your move back to Australia.

 6. Australian Tax Treatment Upon Returning

Regardless of when an individual returns, Australians:

a) Will immediately become Australian tax residents and be taxed on their worldwide income for Australian tax purposes.

b) Must declare UK rental income, pension withdrawals, and foreign bank accounts.

c) May claim foreign tax credits for UK tax paid on income still sourced in the UK.

Leaving before April 2025 gives returning Australians more flexibility to clear UK tax obligations before Australian tax residency resumes.

Overview Of Tax Impact Of Australian Leaving Before Or After April 2025

Factor	Before April 6, 2025 (Old Rules)	After April 6, 2025 (New Rules)
UK CGT On Worldwide Assets	No CGT on non-UK assets	Worldwide assets taxable if UK resident 4+ years
UK Inheritance Tax (IHT)	Only applies to UK assets	Worldwide estate taxed if UK resident 10+ years
UK Tax On Foreign Income	Foreign income not taxed if remitted after leaving	Worldwide income taxable if UK resident 4+ years
Bringing Foreign Income Money Into The UK	UK tax only applies when remitted to the UK	UK tax applies on worldwide income (after the first four years) and possible UK tax on past foreign income if repatriated
Australian Tax Impact On Moving Back To Australia	Becomes tax resident immediately, but avoids UK transition issues	Still becomes tax resident of Australia, but may owe UK taxes on past foreign income

Summary

Australians who leave the UK before April 6, 2025 will avoid new UK tax burdens on foreign assets, income, and IHT. Anyone staying past April 2025 or moving to the UK after this date, may face unexpected UK tax liabilities which may continue even after leaving.

These changes mark a significant departure from the UK’s previous tax regime. Understanding these changes is important when assessing a decision around how long you plan to live in the UK, and how this may impact your current tax obligations, as well as the tax impact on your estate.

Whether you are still making your decision on living in the UK, or need to understand the tax consequences of your decision, it is important to engage an international tax specialist who can provide up to date and accurate information tailored to your specific situation.

The United Kingdom is prepared to abolish the non-domiciled (“non-dom”) tax status from April 6, 2025. This is a significant reform which will mean that all UK residents, regardless of their domicile, will be taxed on their worldwide income.

Current Tax Rules In The UK For Non-Domiciled Individuals

Under the current tax rules Australians who live in the UK are taxed according to their domicile status and the nature of their income. An Australian who is not domiciled in the UK may make a claim to be taxed on foreign income on a remittance basis, meaning you are only taxed on any UK-source income and gains plus any foreign income remitted to the UK.

They are also able to return home to Australia without worrying about any ongoing impact of UK taxes for anything other than assets that remain in the UK.

How The UK Tax Rules Are Changing

There are a number of key aspects of the proposed changes which could have a significant impact on Australians in the UK. These include:

1. Abolition Of The Remittance Basis

Under the new system, individuals will be taxed on their worldwide income, similar to the way that Australian residents are taxed on their worldwide income. This means that while living in the UK you will need to include any income that you earn from Australian investments or income sources in other countries, even if you don’t bring that money into the UK.

2. Introduction Of A Four-Year Foreign Income And Gains Regime

On the positive side, new arrivals to the UK, who have not been UK tax residents in the previous ten consecutive years, will benefit from a new four-year period during which they receive 100% relief on foreign income and gains. This relief applies irrespective of whether the income is remitted to the UK. This effectively allows individuals to live in the UK for 4 years without having to worry about the consequences of bringing in their overseas income, and may make it more appealing for Australians to live in the UK on a short term basis that does not exceed this four year period. 

3. Imposing Inheritance Tax (IHT) Even After Departure From The UK

The domicile-based system for IHT will be replaced with a residence-based system. In addition, expats who return to Australia after the new rules are in place may be exposed to IHT for up to 10 years after leaving the UK. This makes estate planning more complex for any Australians living in or returning from the UK.

4. Capital Gains (CGT) On Worldwide Capital Gains

Australians who previously benefited from the remittance basis will now face UK CGT on all gains from worldwide assets, even if those gains are not brought into the UK.

Transitional Rules

There are a number of transitional rules that will help ease UK residents into the new tax system.

Individuals who have previously been non-domiciled and used the remittance basis of taxation will have the option to value their foreign capital assets as of April 5, 2017. This creates a new capital base value to avoid CGT applications on the increase of value up to that date.

Current non-dom individuals will also have access to a transitional discounted tax rates on their previously unremitted foreign income and gains until the 2028 tax year.

Practical Steps To Take If You Stay In The UK After April 6, 2025

Australians who are currently non-domiciled residents of the UK, who decide to stay in the UK, should take practical steps to minimise their UK tax exposure and optimise their financial position. Key actions include:

1. Revaluing assets held outside the UK prior to April 2017 for CGT purposes.
2. Selling assets before April 2025 if advantageous.
3. Utilising transitional tax reliefs by obtaining the right advice from a tax specialist.
4. Maximising the four-year tax exemption (if eligible).
5. Reviewing investment strategies, retirement planning and estate planning strategies to factor in the new tax consequences of remaining in the UK.
6. When assessing the timing of potentially returning to Australia, consider the impact of Inheritance taxes if you live in the UK for 10 years or more.
7. Keep clear records and obtain up to date tax advice to mitigate tax consequences.

It is important to engage an international tax specialist to complete a personalised assessment for tax planning in your specific situation.

Revalue Australian (And Other Foreign) Assets

You should obtain formal or independent valuations for properties, shares, and other investments as of 6 April 2017.

The UK is offering a one-time rebasing relief, allowing individuals who previously used the remittance basis to revalue their foreign assets to April 6, 2017, for Capital Gains Tax (CGT) purposes. This means only gains accrued after April 6, 2017, will be subject to UK CGT when the asset is sold. This relief is not applicable if you were deemed to be domiciled at some point between 6 April 2017 and the introduction of the new tax laws on 6 April 2025.

Plan Asset Sales Before April 2025

If you are planning to sell Australian assets:

a) Consider if there is an overall benefit in selling these assets before April 6, 2025 to avoid UK CGT.

b) If selling after April 2025, use the rebasing relief to reduce taxable gains.

c) Review whether holding assets via a trust or corporate structure might help in specific cases. If so, it may be possible to sell individually owned assets to a corporate structure that you control prior to April 6 2025.

After April 2025, all worldwide capital gains (including on Australian assets) will be taxed in the UK unless you are living in the UK for less than 4 years.

Use Transitional Tax Discounts

Take advantage of any transitional rules where possible.

a) If receiving Australian rental income, dividends, or business profits, consider bringing forward earnings to take advantage of this discount.

b) If withdrawing funds from an Australian trust or investment portfolio, consider timing withdrawals within this period.

For tax relief that is based on timing and access to transitional rules it is important to obtain correct and up to date tax information from the relevant tax specialist.

Consider How To Utilise The Four-Year Foreign Income And Gains Exemption For New Arrivals

If you have not been a UK resident in the previous 10 years then you can utilise the new four-year foreign income exemption.

a) New and recent arrivals in the UK should utilise this period of exemption to plan and structure income sources for optimal tax outcomes.

b) Where you have control over timing of income, consider triggering capital gains or significant foreign income events within the four-year exemption period.

Notably, under the new rules the four-year exemption applies regardless of whether the funds are brought into the UK. This means that any Australians who were not UK tax residents in the previous 10 years will not be taxed on foreign income or gains for their first four years in the UK. This gives Australians a good opportunity to live in the UK on a short-term basis without being impacted by the new rules.

Review Australian Superannuation And Pension Taxation

Engage a tax specialist to complete tax planning strategies for your retirement and review any current and upcoming lump sum or pension income.

a) Obtain long term advice on tax planning strategies that take into consideration the way the new rules will impact any UK tax on lump sum withdrawals or pension income from Australian super funds.

b) If applicable, time superannuation withdrawals strategically before tax rates increase.

c) Consider the types of investment income you are currently earning from Australia. Understanding the tax consequences of these changes gives you the opportunity to assess optimising your ongoing investment and income strategies.

With the tax rules changing, it is important to understand how this could impact your long-term and immediate investment and retirement plans so you can make informed decisions about your finances.

Plan For UK Inheritance Tax (IHT) On Worldwide Assets

The UK imposes an inheritance tax (IHT). Under the new rules IHT will apply to worldwide assets.

a) Consider trusts or corporate structures to protect assets from UK IHT.

b) Review wills and estate planning to align with both UK and Australian tax laws.

c) If planning to leave the UK, remember IHT exposure may continue for 10 years after departure.

Under the new rules, individuals who have been a UK tax resident for 10+ years will be subject to IHT on worldwide assets. This includes Australian property, shares, and businesses. It is therefore important to revise your inheritance strategies if you will be a long term UK tax resident. You should also consider the impact of IHT when assessing timing for making a move back to Australia, as you may be able to avoid IHT by making an earlier move.

Maximise Double Tax Relief And Tax Credits

Talk to an international tax specialist to ensure you have appropriate, current and up to date tax planning strategies in place that consider the new rules. With the UK taxing worldwide income it will be more important to utilise double taxation relief provisions to minimise your tax exposure.

a) Keep detailed tax records to claim foreign tax credits efficiently.

b) Engage an international tax advisor to structure investments efficiently.

The UK-Australia DTA can mitigate double taxation, but relief must be claimed properly as certain income types (e.g., rental income) may still be taxable in both countries.

In Summary 

The new rules will have a significant impact on Australians living in the UK, both while they are living in the UK, and when they return home. For more about the tax implications of returning to Australia under the new rules see our article Australians Living In The UK: Returning To Australia Under The New Non-Dom UK Rules.

While the new rules may reduce the tax impact of residing in the UK for a period of less than four years, long-term residents will now be liable for UK taxes on their worldwide income. This is a significant departure from the current income remittance rules and will mean any Australian currently residing in the UK should seek tax advice regarding their worldwide assets and investments. 

Whether you are a UK expat currently residing in Australia, a UK citizen contemplating a move Down Under, or an Australian expat returning to Australian expat returning from a life in the UK, navigating the intricacies of pension transfers can significantly impact your tax situation and resulting finances.

The option to transfer UK pension to Australia is a worthwhile consideration for anyone relocating to Australia. This guide helps outline the process, identifying the benefits, challenges, and legal aspects involved.

The current remittance basis tax regime will be replaced by a residence based regime from 6 April 2025.

Foreign Income And Gains

Existing non domiciled individuals who have been resident in the UK for less than 4 years will be able to take advantage of the new scheme which provides for tax free foreign income and gains for up to the first four years of residence.

Longer term UK residents (greater than four years) will have to pay tax on all foreign income and gains from 6 April 2025.  However, transitional arrangements will mean that:

• For the 2025/26 tax year they will only pay UK tax on 50% of their foreign income arising in that year;
• Foreign income and gains arising before 6 April 2025 will be able to be remitted to the UK in the 2025/26 and 2026/27 tax years at a temporary 12% tax rate;
• Foreign assets will be able to be re-based to 5 April 2019 value for disposals after 6 April 2025
• Foreign income and gains arising on non-resident settlor interested trusts will not be taxed unless the income and or gains are paid to UK residents.

Overseas Workdays Relief

Non-UK domiciled individuals are currently able to claim tax relief for earnings from duties overseas for up to three years of UK residence – subject to not remitting the funds to the UK.

The Government is to consult on reforming the current regime.  However, it has been confirmed that the basic relief will remain, but the restriction on remittance will be removed.  This will be a welcome simplification for many.

Inheritance Tax

The Government will consult on changes to the inheritance tax regime in light of removing domicile and changing to a residence based regime.

However, to provide certainty, they have confirmed that the treatment of non-UK assets settled into a trust by a non-UK domiciled settlor prior to April 2025 will not change. 

Summary

It is clear that the Government’s intention is to encourage capital inflows into the UK rather than provide disincentives to do so.

However, many long term non domiciled UK residents will be significantly impacted from 6 April 2025 – although the 50% restriction on income and gains subject to tax for that year will be a welcome relief.

Less clear is the position around inheritance tax.  We would welcome clarification in this regard at the earliest opportunity.

Richard Feakins, Director of CST London, recently contributed to an article on the Australian Financial Review – UK’s new tax slug could force expat Aussies home – read Richard’s contribution here.

The Australian tax system is surprisingly different to the UK tax system.

This makes a simple comparison between the two challenging. 

Determining, from an individual taxpayer perspective, which country has higher taxes, isn’t straightforward. Both countries apply progressive rates of tax, as well as a range of potential adjustments and offsets.

Income taxes are lower in the UK due to the progressive rates of tax applying at higher levels of taxable income, but as the UK also has much higher medical contribution taxes than Australia, the UK taxpayer may end up with a higher overall tax burden.

In Australia, income tax is assessed on the taxable income of a taxpayer which is assessable income less allowable deductions while in the UK specific “allowances” may reduce the different types of income before that income is taxed. 

Australian resident taxpayers have a standard tax free threshold, regardless of the type of income or income level, while UK taxpayers have access to different allowances (tax free amounts) that can vary based on income level and the type of income they are earning.

Foreign sourced income is also treated quite differently in the UK, with a threshold applying before tax is imposed.

The following table highlights some fundamental differences between the two tax systems:

	Australian System	UK Tax System
Assessable Income	Progressive rates of tax applied to taxable income.	Progressive rates of tax applied to taxable income- but different rates apply to capital gains and different types of income have allowances deducted before taxes are assessed.
Tax Free component	Standard tax free threshold applies to all taxpayers on the first $18,200 of their income, regardless of the source of this income.	A personal allowance is deducted from the taxpayer’s income before tax is assessed. This allowance is increased for married taxpayers and blind taxpayers, but is reduced for high income earners. Additional allowances are separately applied to different types of income, such as capital gains and investment income.
Public Health	Flat rate of medicare levy applies to all taxpayers unless they are exempt.	Variable rate of health insurance taxes applies, depending on income type and amount of income. This is paid by both the employer and the employee.
Personal benefits provided by an employer	Personal benefits are taxed to the employer as fringe benefits. There are a range of concessions and exemptions that may be applied.	Personal benefits are taxed to the employee, at the value of the benefit. There are some benefits that are exempt.
Residency	An individual who resides in Australia, or an Australian citizen who doesn’t setup a permanent home outside of Australia	Physically present in the UK for a specified period of time during the tax year
Individual Taxpayer’s Tax year	1 July to 30 June	6 April to 5 April
PAYG System	PAYGW (Pay As You Go Withholding) means employers withhold some of an employee’s wage to be paid to the tax office. This helps cover the individual taxpayer’s annual tax assessment. Any excess PAYGW becomes a tax refund.	PAYE (Pay As You Earn) is similar to Australia’s PAYGW system. When too much PAYE has been withheld then an individual can apply for a tax rebate (tax refund) for the excess.
Who is Required to Lodge a Tax Return	All Australian residents and any non-residents with any Australian sourced income are required to lodge a tax return (some exclusions apply for residents who earn under the tax free threshold and have no PAYGW to claim, and for non-residents who only earn certain types of income, such as interest income covered by PAYGW under the DTA).	Most employees’ taxes are covered by their company’s payroll system, meaning they don’t need to lodge a tax return. Tax returns may need to be lodged where: – Income other than employment income is earned (above the allowance) – Foreign income was earned – You are a higher rate taxpayer (annual income over 100,000 pounds) – You need to claim a tax rebate for excess PAYE

Residency

Australian residency is generally dependent on whether an individual actually resides in Australia, however Australian citizens may continue to be Australian tax residents while temporarily residing overseas. There are a number of tests that can be used to help determine residency.

UK residency is based on the number of days an individual is physically present in the UK during the tax year. For more complex situations that do not meet the automatic test, other factors may apply.

Tax Rates

Both Australia and the UK apply progressive rates of tax ranging from 0% to 45%.

However, while Australia has a standard initial tax free threshold for all taxpayers, the UK utilises a system of allowances that taxpayers deduct from their income before tax is assessed. The amount of allowance changes depending on a range of factors, and different allowances are applied for different types of income, such as employment income, investment income and capital gains.

Medicare/ NHS

Australians pay a flat rate of medicare (2%), unless they are exempt. High tax payers pay an additional medicare levy surcharge of up to 1.5%, unless they pay for private hospital health insurance. 

In the UK both the employer and the employee are required to pay a contribution towards national health insurance, at rates varying from 0% up to 13.8%.

Capital Gains

Both Australian and the UK impose a capital gains tax.

In Australia capital gains are simply added to an individual taxpayer’s assessable income and taxed at the marginal rate at which the income falls. Assets that have been owned for more than 1 year can be discounted by 50% before being included as assessable income. Other exemptions may also be applied to reduce or rollover capital gains.

The UK tax system gives taxpayers an annual allowance for capital gains. Any capital gains up to the allowance each year are tax free. Like Australia, there are also other exemptions that may be applied to reduce or rollover certain capital gains. 

In the UK, capital gains are taxed at a different rate to other income, and residential property is taxed at different rates to other assets. Higher/additional rate taxpayers pay 28% on residential property and 20% on other chargeable assets. Basic rate taxpayers will pay either 10% or 20% on capital gains, unless it is on residential property, in which case the rate is either 18% or 28% (depending on the size of the gain and the taxable income of the taxpayer.

Both countries have an exemption for the sale of an individuals’ main residence.

Inheritance tax

Australia does not have an inheritance tax.

Neither inheritances nor deceased estates attract any specific form of tax. Any property or investments that are inherited will attract taxes in the same way as any property or investments that were acquired personally and subsequently sold. (There are some provisions for inheriting a main residence that allow the main residence exemption to be carried over).

The UK has a standard inheritance tax rate of 40% above the tax free threshold (the standard tax free threshold is currently 325,000 pounds).

Where everything is left to a spouse, civil partner, charity or community amateur sports club, there is normally no inheritance tax to pay. When your home is given to your children (including adopted, step, and foster children), the threshold can increase to 500,000 pounds.

If an individual who is married (or in a civil partnership) passes away with an estate that is worth less than their threshold, then the unused portion of their threshold can be added to their partner’s threshold for when they die.

The inheritance tax may be reduced to 36% on certain assets if at least 10% of the net value of the estate is left to charity in the will. There are some other reliefs and exemptions to help reduce inheritance taxes on gifts donated prior to death, business relief, and agricultural relief.

Australian and UK Tax Systems

Each tax system has a range of complexities that are unique to the respective country.

In some ways the basic Australian tax return is more straightforward for the individual taxpayer.

On the other hand, the UK system’s use of deductible allowances for different types of income, provides for a range of tax planning avenues that are not available to Australians.

Since the tax systems between each country are so different, and residency changes can trigger complex tax issues, it is important to seek expert advice in both countries when making a move between Australia and the UK.

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.

The biggest personal tax residency case in 40 years just got bigger. The taxpayer Mr Glen Harding having lost his case in front of a single judge in the Federal Court has won an emphatic victory in the Full Federal Court in a decision handed down on 22 February 2019.

In Harding v Commissioner of Taxation [2018] FCA 837 in a unanimous decision the Court found that Glen Harding was not a resident of Australia because;

• he did have a Permanent Place of Abode in Bahrain; and
• he did not reside in Australia;

As we reported last year in our blog (an Appeal to Common Sense) the taxpayer, Glen Harding, appealed from an initial Federal Court decision against him.

The Facts of Harding’s case were, in essence, that Mr Harding, in his evidence, had abandoned his residence in Australia, with the intention never to return. However, in establishing life in Bahrain, he lived in an apartment building called “Classic Towers”. Initially he took a two bedroom apartment because he believed that his wife and children would visit him from time to time.  He remained in that apartment from 10 June 2009 until 9 June 2011.  When his marriage broke down around 2011 and he realised that his wife would not be moving to Bahrain, he moved in to a one bedroom apartment where he remained until 9 June 2012.

The case was all about whether Mr Harding was a resident in Australia for the income tax year ended 30 June 2011 and the single judge in the first instance found that because of the style of accommodation that Mr Harding chose in Bahrain, being a fully furnished apartment, he had not established a permanent place of abode in Bahrain, despite several other factors which demonstrated that he was living in Bahrain.

Several principles of residency law were analysed in detail by the Court. However, the main focus was on the question of what was meant by the phrase ‘Permanent Place of Abode’. A clear understanding of that phrase is critical because of the definition of tax residency in Section 6(1) of the Income Tax Assessment Act 1936.

That definition says that a person is a resident of Australia if they reside in Australia and includes a person who is Australian domiciled unless the Commissioner would be satisfied that the person has established a Permanent Place of Abode outside Australia.

Most Australian expats who move overseas will remain domiciled in Australia and hence, unless they can show that they have established a permanent place of abode overseas, will remain fully taxable in Australia. It has never been the case that an Australian who is itinerant overseas avoids taxation in Australia.

So the question ‘what is a Permanent Place of Abode?” is critical. In their joint decision,  Davies and Steward JJ with Logan J in agreement, indicated that the word ‘place’ should be read as including a reference to a country or state and they expanded by saying;

In the context of the legislative history, in our view, the phrase “place of abode” is not a reference, as one might have thought, only to a person’s specific house or flat or other dwelling.  If that had been Parliament’s intention it would have used the phrase “permanent abode” rather than “permanent place of abode”.  The word “place” in the context of the phrase “outside Australia” in subpara (i) invites a consideration of the town or country in which a person is physically residing “permanently”.

In taking that approach, the Court referred to the analysis of Sheppard J in Applegate’s case where he indicated that as follows:

“place of abode”’ may mean the house in which a person lives or the country, city or town in which he is for the time being to be found.  I am of the view that the latter is the meaning of the expression used in s. 6(1.) of the Act.  Thus a person might be correctly said to have a permanent place of abode in, say, Vila, notwithstanding that during a given period he lived in a number of different establishments occupying each for only a relatively short period.  His case is no different from one where a person, such as the appellant here, lives, for a substantial period, in the same house.

So here we see, for the first time, a definite focus by the Federal Court on the permanence in a particular jurisdiction as being of paramount importance rather than the particular ‘type’ of accommodation that a tax payer chooses to live in within that jurisdiction.

If this decision stands, it would be a victory for common sense, because if a person is living permanently in a particularly city it should not be critical what type of accommodation the person chooses to live in.

Author: Matthew Marcarian

The taxpayer, Mr Harding has appealed to the Full Federal Court of Australia from a decision handed down on 8 June 2018 by Justice Derrington, in Harding v Commissioner of Taxation [2018] FCA 837. In that case His Honour, found that Mr Harding was resident of Australia for tax purposes under the Domicile Test, because he failed to establish a ‘permanent place of abode’ in Bahrain during the relevant year, even though he left Australia permanently in 2009 and lived in Bahrain until 2015, before moving to Oman.

We believe the decision creates significant uncertainty and we are glad to see it appealed.

What happened in the case?

In 2009 Mr Harding departed Australia to take up full time employment in Saudi Arabia. He chose to live in Bahrain (as is commonly done) and obtained a visa to do so. Mr Harding and his wife Mrs Harding had previously lived overseas in the Middle East.

On the facts outline in the case, Mr Harding seemed to have lived in the one apartment in Bahrain for almost 2 years from June 2009 to 9 June 2011, including almost all of the year ended 30 June 2011 – which was the year in dispute in the case.

Matters were apparently made complicated for Mr Harding because on this occasion his wife (and his children) did not accompany him to Bahrain initially and after going so far as to enrol his youngest son into the British School in Bahrain, Mr Harding’s marriage did not survive.

There is a some suggestion that Mr Harding only secured a two bedroom apartment when he initially moved to Bahrain, perhaps because he knew that when his family moved (as he intended that they would) more suitable accomodation would be required. His Honour also appeared to be completely convinced that Mr Harding had departed Australia permanently – even going so far as to list the things which he considered were evidence of that fact.

What was the problem?

The problem for Mr Harding was that even though His Honour was convinced that he had left Australia permanently (and was not resident according to ordinary concepts), His Honour was not convinced that Mr Harding had established a ‘permanent place of abode’ in Bahrain. Consequently since Mr Harding was an Australian domicile – he was still a tax resident of Australia.

This is because of the operation of the ‘Domicile Test’ in Australia’s residency laws. The Domicile Test treats all persons who have their domicile in Australia as being tax resident, unless they can show that they have a ‘permanent place of abode’ outside Australia. We believe that the concept of Permanent Place of Abode is a settled concept under Australia’s tax law and has been so for over 40 years since FC of T v Applegate 79 ATC  4307 (Applegate). The concept of ‘place of abode’ has its ordinary meaning and the use of the word ‘permanent’ in connection with an abode simply implies a place which is not temporary.

Given that the Court agreed that Mr Harding;

– made his life in Bahrain;
– had a visa to reside in Bahrain and in fact resided in Bahrain;
– owned a car in Bahrain;
– had exclusive use of an apartment in Bahrain which he leased (which the Court agreed was not short-term accomodation; see para 75);
– travelled every day from Bahrain to his full time place of work in Saudi Arabia;

we find it difficult to see why Mr Harding was found not to have a permanent place of abode in Bahrain.

The factors that seemed to be held against Mr Harding were that he did not own many possessions (given the apartment was fully furnished) and it was reasonably easy for him to move between apartments in the same complex which he did in July 2011 (after spending almost 2 years in the fist apartment) when it became apparent that Mrs Harding was not going to move to Bahrain.

It also seemed to weigh strongly on His Honour’s considerations that Mrs Harding did not seem to want to live in the original apartment Mr Harding had chosen (even though it was big enough to house the family) and that Mr and Mrs Harding together looked at alternative accomodation when she visited him in Bahrain.

A relevant fact also apparently was that Mr Harding’s postal mail was not sent to Bahrain, but continued to be sent to his former home in Australia. In relation to this His Honour remarked in his closing remarks (para 149) that “It is indicative of an intention to reside at premises permanently or, at least, not temporarily if that place is used as the address for correspondence. Were a person to use their apartment address as that to which important correspondence is to be addressed it can be thought that they are intending to remain there for an extended period of time.” We cannot understand why His Honour considered that the receipt of postal mail in Australia was of material significance, when by contrast His Honour did not see it as particularly significant that Mr Harding had continuing financial arrangements with Australia (paragraph 85).

Factors suggesting Mr Harding did have a Permanent Place of Abode was in Bahrain

The strangeness of the decision here is compounded by the fact that although Mr Harding’s contract of employment was only for 12 months, when Counsel for the Commissioner argued that Mr Harding’s presence in Bahrain was ‘somewhat tenuous’ because of this, His Honour responded by remarking (correctly in our view) on the permanent nature of Mr Harding’s departure from Australia, his intention never to return to Australia to live, and his working history which demonstrated that was ’eminently employable’, effectively dismissing the Commissioner’s argument that the short term nature of the employment contract was a material weakness in the case.

Indeed at para 147 His Honour remarks that “An associated argument advanced by the Commissioner was that as Mr Harding’s employment in the Middle East might be terminated at short notice, his presence there was necessarily of a transitory nature. That submission, however, fails to take into account that Mr Harding was intent on remaining in the Middle East, although not necessarily in Bahrain, and his presence there was not, necessarily, tied to his continued employment with TQ Education.”

The decision in this case is all the more puzzling given that His Honour accepted that Mr Harding took leases of the apartments as extended term propositions also accepting that“that Mr Harding made his life in Bahrain. It was the place from which he commuted daily to his work in Saudi Arabia. He formed friendships there and it was where he attended restaurants and bars after work. He also went to the beaches there and engaged in go-carting at the local grand prix track. In general terms, he pursued the expatriate lifestyle with which he had been familiar for many years.”

Implications for Australian Expats

We hope that the decision in Harding is overturned on appeal. The answer to question of whether a person has established a ‘permanent place of abode’ overseas should be arrived at simply and in a common sense fashion, by considering whether the taxpayer has only a temporary place of abode in the country.

For residency purposes if a place is not temporary then it must be permanent otherwise a person cannot have any certainty.  Surely we cannot have a third class of residency, being a state of being somewhere in the middle of temporary and permanent.

If the Court accepts that Mr Harding ‘made his life in Bahrain’ it should accept that he had a permanent place of abode there, regardless of where his postal mail is sent to.

It is pertinent to conclude by reflecting on the often quoted words of Fisher J in Applegate who said;

“To my mind the proper construction to place upon the phrase ‘permanent place of abode’ is that it is the taxpayer’s fixed and habitual place of abode. It is his home, but not his permanent home..Material factors for consideration will be the continuity or otherwise of the taxpayer’s presence, the duration of his presence and the durability of his association with the particular place.”

We look forward to a common sense judgement from the Full Federal Court in Mr Harding’s case.

UPDATE: On 22 February 2019, the Full High Court handed down a decision on the Harding v Commissioner of Taxation [2018] FCA 837  case. Please see Residency – Harding’s Appeal Victory for the decision.

Author: Matthew Marcarian

As we reported in our blog last year – the Australian Government announced that it would remove the CGT main residence exemption for foreign residents.

It was said that this reform was being introduced as part of measures to address housing affordability in Australia. Due to other legislative priorities a bill to enact the change was not introduced and we had hoped that the Government would have taken the time to ensure grandfathering of all existing properties.

However the bill was re-introduced earlier this month as Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures No. 2) Bill 2018, apparently unchanged after the exposure draft consultation period last year.

The Bill has now been referred to a Senate Standing Committee which represents the last opportunity to lobby for changes to be made to the Bill. Submissions close 5 March 2018.

What Is The Problem?

In trying to tighten our CGT laws, the Bill denies Australians living abroad access to the “CGT absence concession”. This existing concession gives many Australian expats the opportunity to retain the CGT exemption on their former home for up to 6 years, even if they rented their home out after they had moved overseas. This exemption will be removed.

Disastrously though, the changes seem to be more fundamental. The Bill, as drafted, denies even a partial CGT exemption by providing no CGT relief even for the period of time when the person had lived in their home before departing Australia. The Explanatory Memorandum to the Bill makes this alarming problem crystal clear (see Example 1.2 which is extracted below). We do not believe this was the Government’s intention.

The only way out under the draft Bill is that taxpayers seem to be allowed to move back into the property after returning to Australia (as a resident) and to then sell the home on a CGT free basis (assuming the absence exemption otherwise applies). This creates a tax-driven ‘lock-in’ effects which is likely to create significant issues for taxpayers and rather than assist housing supply could in fact create further supply constraints.

Does This Apply To You?

If you are an Australian expatriate then the Bill provides that unless you sell your former home prior to 30 June 2019, you will be subject to CGT on the sale of the property if you sell it after that date while you are still a non-resident of Australia for tax purposes. Unfortunately, as currently drafted, the Bill would not even provide you with a partial CGT exemption to recognise the period of time that you lived in your home prior to your departure. To preserve your CGT exemption you would be left with the choice of either selling prior to 30 June 2019 or else keeping the property until you one day return to Australia.

The tightness of the 30 June 2019 deadline has seen concerns expressed in the Australian Financial Review recently about a fire sale in expat owned property. While predictions of a fire sale may not be true, it is nonetheless a highly unfair position to put home owners in and the Bill represents poor policy implementation.

Artificially ending the absence concession by using a ‘drop dead date’ on 30 June 2019 is highly equitable. It will mean that failure to sell by 30 June 2019 could mean that an Australian living overseas could be exposed to hundreds of thousands of dollars of tax, given the increases in Australian property over the last 3 years.

What Should Be Done To Fix This?

We strongly urge the Government to fix the Bill by ensuring that amendments are made so that:

• all Australian expatriates who were already non-resident of Australia when the changes were announced on 9 May 2017, should continue to be able to access the absence concession regardless of where they reside; and
• all persons should be able to access the partial CGT exemption for at least that part of the ownership period during which they lived in the property and were resident of Australia.

We believe that the flaws in this Bill are an oversight that will be rectified once these problems are better understood. In our experience most Australians living abroad who keep their home in Australia do pay taxes and continue to contribute to the Australian economy.

If the Government wishes to persist with the change of law to only permit CGT exemptions for those who are tax resident in Australia –  then they should ensure that they are fair to the thousands of Australians who have moved overseas (most of whom will return) but who have retained their former homes in Australia.

Final submissions are now being requested and we strongly recommend that interested parties make a submission on this inequitable change.

You can contact your local member of parliament and forward this blog.

If you are concerned about the unfairness of this change submissions can be made to.

Committee Secretariat Contact:

Senate Standing Committees on Economics
PO Box 6100
Parliament House
Canberra ACT 2600

Phone: +61 2 6277 3540
Fax: +61 2 6277 5719
economics.sen@aph.gov.au

Extract from Explanatory Memorandum to the Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures No. 2) Bill 2018

Example 1.2 — Main Residence Exemption Denied

Vicki acquired a dwelling in Australia on 10 September 2010, moving into it and establishing it as her main residence as soon as it was first practicable to do so. On 1 July 2018 Vicki vacated the dwelling and moved to New York. Vicki rented the dwelling out while she tried to sell it. On 15 October 2019 Vicki finally signs a contract to sell the dwelling with settlement occurring on 13 November 2019. Vicki was a foreign resident for taxation purposes on 15 October 2019. The time of CGT event A1 for the sale of the dwelling is the time the contract for sale was signed, that is 15 October 2019. As Vicki was a foreign resident at that time she is not entitled to the main residence exemption in respect of her ownership interest in the dwelling. Note:

This outcome is not affected by:

• Vicki previously using the dwelling as her main residence; and

• the absence rule in section 118-145 that could otherwise have applied to treat the dwelling as Vicki’s main residence from 1 July 2018 to 15 October 2019 (assuming all of the requirements were satisfied).

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