Aus citizen living in uk (but not forever...)

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Topic Author
DRC
Posts: 2
Joined: Wed May 11, 2022 4:23 pm

Aus citizen living in uk (but not forever...)

Post by DRC »

Hey all!

First post here, hoping you guys can help.

I'm an Aussie, currently living and working in the UK (with UK citizenship also). This is my first foray into long term investing, and I'm keen to build up a pretty simple portfolio of broad ETF's (and maybe some bonds...)

The major thing I'm having issue with is how to go about doing this knowing I'll be moving back to Aus in a year or two. I do have an IBKR account within the UK so could transfer any holdings to IBKR AU easily once I move back.

I'm not an aus resident for tax purposes, so my read is it's too complicated to invest in AU domiciled ETF's through a local Australia broker, and also not tax efficient. I also can't invest in the 'good' AU domiciled ETF's with my IBKR UK account due to PRIIPS etc meaning they're not approved offshore reporting funds.

Am I then best off investing in Ireland domiciled ETF's then selling these when I move home? My concern is tax implications here (like capital gains etc) if I sell then re-buy AU equivalent ETF's. If I hold these I'd lose any franking credits on any Aus companies, but presumably this isn't too much of an issue unless I wanted an ASX ETF. I guess there are also potential currency risks if the funds are in GBP?

Fund will be coming from my UK salary and some savings I have back in Aus (IBKR means I can transfer AUD into the account for free from Aus, thhen very cheap conversion).

Cheers!
Valuethinker
Posts: 44460
Joined: Fri May 11, 2007 11:07 am

Re: Aus citizen living in uk (but not forever...)

Post by Valuethinker »

DRC wrote: Wed May 11, 2022 4:44 pm Hey all!

First post here, hoping you guys can help.

I'm an Aussie, currently living and working in the UK (with UK citizenship also). This is my first foray into long term investing, and I'm keen to build up a pretty simple portfolio of broad ETF's (and maybe some bonds...)

The major thing I'm having issue with is how to go about doing this knowing I'll be moving back to Aus in a year or two. I do have an IBKR account within the UK so could transfer any holdings to IBKR AU easily once I move back.

I'm not an aus resident for tax purposes, so my read is it's too complicated to invest in AU domiciled ETF's through a local Australia broker, and also not tax efficient. I also can't invest in the 'good' AU domiciled ETF's with my IBKR UK account due to PRIIPS etc meaning they're not approved offshore reporting funds.

Am I then best off investing in Ireland domiciled ETF's then selling these when I move home? My concern is tax implications here (like capital gains etc) if I sell then re-buy AU equivalent ETF's. If I hold these I'd lose any franking credits on any Aus companies, but presumably this isn't too much of an issue unless I wanted an ASX ETF. I guess there are also potential currency risks if the funds are in GBP?

Fund will be coming from my UK salary and some savings I have back in Aus (IBKR means I can transfer AUD into the account for free from Aus, thhen very cheap conversion).

Cheers!
Assuming you are normally resident in the UK and not resident in Australia for tax purposes (check relevant HMRC for the former).

Then in practice you will pay UK tax on whatever you do - here or in Australia.

You need to know what the tax consequences of returning to Aust are: is there automatic capital gains on immigrating to Australia (becoming tax resident)? Or can you just hold Ireland domiciled ETFs for the long run and pay tax normally in Australia.

Tax franking credits are a distraction. Australia is c. 3% world markets? Your best strategy is to use a global index fund. It's not clear how much benefit to an Australian the franking actually is -- it certainly encourages poorly diversified portfolios.

If you do have to sell your investments pre returning to Australia then yes, you will pay capital gains tax:

- the UK has an exemption (I cannot remember the level off hand £12,000?)
- CGT above that is at a 20% rate (lower if you are not a higher rate taxpayer, I believe)
- if you are paid above £100k a year then the rules are different
- if the money is in an ISA, (£20k pa contribution limit), then you won't pay CGT in the UK as a UK resident. So you could just take the money out as cash (tax free withdrawal) and reinvest it when you return to Australia? That would just cost your FX charge

Ted Swippet here is the expert, but pension fund assets may be exempt - depending on the tax treaty between our 2 nations. Since your are required to put 5% of your salary into a pension, and your employer is also matching it (and you should grab any employer match - that's 100% return before you start) then that's a very tax efficient and effective way of investing.

Other than getting your employer match, an ISA is your most efficient form of saving.

On currency risks don't confuse the fund reporting currency with its investing currency. What matters to performance is where the money is invested (ie by weighting per stock market) not how it is reported (which is just a translation of the end prices of the stocks back into the reporting currency).

A global equity fund, currency unhedged, reporting in GBP will have the same returns as a fund reporting in AUD. In fact, administratively, the fund provider will typically offer the fund or ETF with reporting currencies in USD, EUR and GBP.

Your only risk exposure then is a small amount of foreign exchange exposure for any residual cash in the fund (or in your broking account). Your "home currency" will be GBP until you return to Australia and move the money across.

Remember not to hold Accumulating/ Accumulator funds or ETFs in a taxable account in the UK. You are required to pay tax on all dividends, even if not distributed. With a Distribution/ Distributor fund those are just paid out in cash and it's easy to figure out what you got. With Accumulation/or the dividends go back into the NAV & it's difficult (or impossible) to work out what they were.
Last edited by Valuethinker on Thu May 12, 2022 3:54 am, edited 1 time in total.
TedSwippet
Posts: 4177
Joined: Mon Jun 04, 2007 4:19 pm
Location: UK

Re: Aus citizen living in uk (but not forever...)

Post by TedSwippet »

Welcome.
DRC wrote: Wed May 11, 2022 4:44 pm Am I then best off investing in Ireland domiciled ETF's then selling these when I move home? My concern is tax implications here (like capital gains etc) if I sell then re-buy AU equivalent ETF's. If I hold these I'd lose any franking credits on any Aus companies, but presumably this isn't too much of an issue unless I wanted an ASX ETF. I guess there are also potential currency risks if the funds are in GBP?
Valuethinker has outlined the options well upthread.

You have a £20k annual ISA allowance. Use that to the full, so that you face zero UK tax on gains while a UK resident (and presumably, also zero Aus tax, as a non-resident of Australia). Sell up before becoming an Australian tax resident, and no tax worries from either country. Selling and withdrawing from the ISA means that you can never re-use that same ISA tax-free space again in future, but if you do not plan to return to the UK then that is no form of drawback.

Beyond this, the UK has a £12,300 (currently) annual capital gains tax allowance. So for investments not inside an ISA, you can again sell up to this amount of gain before becoming an Australian tax resident, and so avoid capital gains tax from either country. You would face some UK tax for the duration on dividends, but there is a separate allowance of £2k/year on these, beyond which they are taxed at lower rates in the UK: 8.25% for basic rate taxpayers, and 33.75% for higher rate taxpayers.

With care then, you should be able to avoid most if not all tax on your investments for a year or two. Over time, of course, gains and dividends start to exceed the allowances (outside of an ISA), but on the timescale you're looking at, this should not worry you. Also, selling Ireland domiciled ETFs after just a year or two is not short-term investing if you immediately reinvest your cash in (broadly) equivalent funds or ETFs when you move back to Australia. The underlying stocks and other investments will remain the same; only the vehicles holding them change.

The only other wrinkle may be bonds. For you, holding UK gilts (government bonds) would make no real sense, and even UK corporate bonds or anything else GBP. You haven't stated your age, so bonds may not even be on your radar. If they are, though, then a global bond fund is probably best. Ideally you'd want one hedged to AUD, but I'll bet (not checked!) that you won't find anything accessible that is AUD hedged. In which case, unhedged.

As for pensions, the UK/Australia tax treaty makes pensions taxable only to country of residence, Article 17 paragraph 1. That makes UK pensions a decent-ish option for someone retiring in Australia.

However, be sure to recognise the limitations with pensions. Apart from unthinkables like terminal illness, no access at all until age 55, rising to 57. And a UK resident could take 25% of their pension tax-free; however, Australia may not honour that (unfortunately, the treaty is silent on this point). For a short stint in the UK, a pension might be a decent investment option, but alternatively might just create a decades-long tax paperwork nightmare for low-ish gain. So you'll want to weigh up the options, and decide whether to contribute to the max allowed, just enough to capture the employer match, somewhere between, or even just pass on the entire thing.

You won't be in the UK long enough to qualify for a UK state pension, and unfortunately, there is no longer a UK/Australia social security agreement.
Valuethinker
Posts: 44460
Joined: Fri May 11, 2007 11:07 am

Re: Aus citizen living in uk (but not forever...)

Post by Valuethinker »

TedSwippet wrote: Thu May 12, 2022 3:28 am

However, be sure to recognise the limitations with pensions. Apart from unthinkables like terminal illness, no access at all until age 55, rising to 57. And a UK resident could take 25% of their pension tax-free; however, Australia may not honour that (unfortunately, the treaty is silent on this point). For a short stint in the UK, a pension might be a decent investment option, but alternatively might just create a decades-long tax paperwork nightmare for low-ish gain. So you'll want to weigh up the options, and decide whether to contribute to the max allowed, just enough to capture the employer match, somewhere between, or even just pass on the entire thing.

You won't be in the UK long enough to qualify for a UK state pension, and unfortunately, there is no longer a UK/Australia social security agreement.
Just to reiterate Ted's point:

- the *lower* bound of pension contribution should be to get the employer match. That's free money, which will then compound until you are 57 (or 60 or whatever it is at that age). Then of course you will be taxed on it - but if you contribute 50, your employer 50, then say that is 30 years at 5% real returns then roughly 4x. Your 50 become 400. Even paying a high tax rate on that, that's very nice money.
Topic Author
DRC
Posts: 2
Joined: Wed May 11, 2022 4:23 pm

Re: Aus citizen living in uk (but not forever...)

Post by DRC »

This is super helpful, thanks!

Maximising the ISA definitely makes sense. Is there no tax implication for bringing into the UK or out of the UK to Australia then?

I currently have the bulk of my savings sitting in mums super account which is not ideal, but seems to have been insulated from the recent downturn as a lot of it is in bonds etc. Might make sense to keep that there until we get back to Aus I'm guessing?
Valuethinker
Posts: 44460
Joined: Fri May 11, 2007 11:07 am

Re: Aus citizen living in uk (but not forever...)

Post by Valuethinker »

DRC wrote: Fri May 13, 2022 2:16 am This is super helpful, thanks!

Maximising the ISA definitely makes sense. Is there no tax implication for bringing into the UK or out of the UK to Australia then?

I currently have the bulk of my savings sitting in mums super account which is not ideal, but seems to have been insulated from the recent downturn as a lot of it is in bonds etc. Might make sense to keep that there until we get back to Aus I'm guessing?
No implications of transfers in as long as they are not income earned or from investments (by you).

Once the money is in an ISA (it's after tax money) then you can take it out, realise gains, receive dividends etc without consequence in the UK.

The usual rule of thumb (simplified) is: 1. pension to the maximum to get the company match 2. ISA 3. any spare pension savings capacity-- in that order.

If you do that before you re-emigrate to Australia, ie while still a UK tax resident, then all you would face is any tax that Australia places on new immigrants re capital (which I don't imagine they do) - guessing here about Australian tax law. But if you do this before you become tax resident in Australia then why would there be a penalty?

Presumably you cannot take money out of your Mum's Superannuation account? Cannot withdraw from it?

Since it is in Australian dollars, you bear no foreign exchange risk - so yes, keeping it in Australia would be a good idea BUT you will have to pay tax on any income from it *if* HMRC does not recognise an Australian pension (but you say it is your Mum's?). As a UK resident you pay tax on your global income. Unless you go the non-domicile route in the UK -- which can be expensive to establish (you'd need professional advice).
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