Tax planning ahead of move to UK – avoiding substantial tax liability further down the line

Tax Planning

Mr and Mrs Jones relocated to the UK in 2021 and wish to benefit from the Remittance Basis of Taxation. Example Case study:

At the beginning of January 2021, Mr and Mrs Jones decided they wanted to relocate from Australia to the UK, so that their two minor children could start school early in September 2021.

They had already consulted with an Australian tax adviser to make sure that they carried out all of the relevant local tax planning in preparation for leaving Australia, but they were contacting us to find out what the tax implications would be for them once they had relocated to the UK.

The previous year, their friends had relocated to the UK, and believing that as they were not originally from the UK, they would be taxed on the ‘remittance basis’ and hence not on their non-UK source income, had found themselves liable to a substantial amount of capital gains tax and income tax as they had not planned for the move.

Fortunately for Mr and Mrs Jones, they had heard of this and not wanting to find themselves in the same situation, sought UK tax advice.

They had a large sum of cash savings held in an Australian bank and were planning on renting out their property in Australia, from August 2021.

Dixcart UK are able to advise them that:

  • They would become tax resident in the UK from 1 August 2021 under the UK’s split year rules (as they planned on moving to the UK on 1 August 2021) and would be liable to file a tax return by 31 January 2023 and pay any taxes due,
  • They should instruct their Australian bank to make sure interest from their cash savings is kept in a new, but separate account going forward, and
  • They should instruct their Australian bank, as of August 2021 when they start to rent out their property, to make sure rental income is deposited in a separate newly created bank account (but within the same bank).
  • If they ever decide to sell their Australian property, they should not remit this income to the UK (unless they need the funds in the UK but see below) but add the proceeds of the sale to a newly created capital gains account with their bank.

In regard to the final bullet point, we often see individuals sell their properties abroad in order to purchase a property in the UK, which is exactly what the friends of our clients did.

Instead, if Mr and Mrs Jones ever decide to purchase property in the UK, they should try to remit monies from their original cash savings, rather than use the money from the sale of their property, as they would be remitting capital that they have PRIOR to becoming UK tax resident, and that this would be tax free in the UK providing the followed the advice above.

As planned, in August 2021, Mr and Mrs Jones moved to the UK ready for the new school term. If they had not sought UK tax advice in advance of this, and put appropriate tax planning measures in place, they may have had a very different start to living in the UK than they did.

Read our article here to find out what happened to their friends and how the outcome for them could have been so different and could have resulted in a UK tax liability of ZERO instead of what did happen.

The information provided within this document is for general informational purposes only. While every effort has been made to ensure its accuracy, no responsibility can be accepted for inaccuracies. Readers are advised that laws and practices may change over time. This document is provided solely for informational purposes and does not constitute accounting, legal, or tax advice. Professional advice should be sought before making any decisions based on the contents of this document.