Are you an Australian resident planning to move to the UK? If so, here are some capital gains tax (CGT) implications that you might want to think about.
Non-taxable Australian property
When you cease to be an Australian tax resident, there is a deemed disposal of your worldwide CGT assets, except for Taxable Australian Property (TAP) (direct and indirect interests in Australian real estate), at their market value under CGT event I1. This means a capital gain or loss is calculated based on the difference between the asset’s market value at the time you become a non-resident and its cost base – the ‘Exit Charge.’
Tax treatment of assets
After the Exit Charge is paid, any future capital gains or losses on your non-TAP assets should not be subject to Australian tax. However, keep in mind that any future capital gains or losses on your TAP assets (e.g., Australian property) will still be subject to Australian tax, even if you’re not an Australian tax resident at that time.
Election to disregard the Exit Charge
There’s an option to elect to disregard the Exit Charge when you cease to be an Australian tax resident. If you choose to defer the CGT, any subsequent disposal of the CGT asset may be subject to Australian CGT at that time, unless relief is provided in a relevant double tax agreement. That’s where Australia’s Double Tax Agreement with the UK comes into play, it exempts a future disposal from Australian CGT and allocates the taxing rights to the UK. But all is not as it seems, if you are taxed on the remittance basis in the UK and the gain is not (partly or fully) remitted the taxing rights fall back (partly or fully) to Australia. Whether the remittance basis applies is based on your domicile, a whole other story.
The conundrum
If you don’t elect to defer the CGT exit charge, it could lead to an unfunded tax liability, potentially causing cash flow issues. If you do elect, as a non-resident of Australia, you won’t be entitled to the general 50% CGT discount to reduce the capital gain on a future disposal, but if you do elect you might benefit from the UK’s low CGT rates of 10%/20%.
Plan ahead and don’t be taken by surprise when it comes to tax and your overseas move. At Salann we specialise in Australian/UK tax and are on hand to help you manage your tax liabilities effectively.
