Planning to move to Australia? Here are your 5 Financial Planning Priorities

If you are relocating to further your career or to retire, we can help you to create a clear, effective financial plan that will enable you to embrace your new life in Australia with confidence and resilience.

On the basis of our professional expertise and my personal experience of living in Australia as a British expat myself, I've detailed here the top five financial planning priorities for you to focus on, prior to your move.

• Transfer your UK pensions
• Manage your currency risk
• Decide whether to sell or retain your UK property
• Understand tax changes
• Minimise your Inheritance Tax [IHT] liability
  
  

1. Transferring your UK Pensions to Australian Superannuation

When it comes to optimising your pension funds, transferring your UK pension to a complying Australian superannuation ('Super') presents a significant opportunity because of the different way that each is taxed.

In the UK, contributions are not taxed on the way into the scheme and investment growth is also not taxed. However, all but 25% of the fund is taxed on the way out when withdrawals are made. In contrast, contributions to a Super in Australia are tax deductible (so no personal tax is paid) and tax is paid inside the scheme (at a concessional rate of 15%) with investment growth and capital gains also being taxed. But importantly, when you come to make income withdrawals from your Super they are tax-free (provided you meet what is termed a 'condition of release', which normally requires you to be 60 or older). So, you can see that, if UK pensions are transferred to an Australian Super, then it is possible to pay little or no tax at each stage.

Currently, a UK pension can be transferred to an Australian Super at 55 years of age (but this will increase to 57 years of age in 2028). The funds in your Australian Super can then be accessed at the age of 60 or 65 (dependent upon the condition of release and whether you are still working).

UK Pensions schemes and the Australian Super have 'annual allowances'. This is the maximum that you can contribute each year. In the UK the current annual allowance is £60,000 and in Australia it’s approximately £76,830 ($150,000 AUD) of which £15,350 ($30,000 AUD) is tax deductible and the balance can be made from taxed income which has no 15% tax applied in the Super account.

Our detailed understanding of UK and Australian pensions and UK pension transfers means that we can provide you with clarity and simplicity - helping you to optimise your pension funds and benefits, cut through the complexity, and avoid any costly potential pitfalls. To discuss transferring your UK pensions to Australia in more detail, schedule a meeting with me.

2. Managing currency risk

The fact that the Pound has fallen in value by 28% in relation to the Australian Dollar since January 2001 highlights that currency risk has the potential to significantly impact the value of your UK pension funds and investments held in Pounds Sterling (GBP) - diminishing their buying power and the lifestyle they afford you over the long term in Australia.

Forth Capital offers each of our clients an optimal investment solution; a bespoke goal-based financial plan tailored to your individual requirements, combined with access to a range of risk-rated investment strategies denominated in Australian Dollars, designed in partnership with Morningstar (the world’s largest fund analytics company) to help you achieve your goals. To find out more about our Australian Dollar denominated Morningstar Next Generation Global Fund Strategies contact us today.

3. Should I sell my UK property (and any UK buy to let properties I own), or retain it and generate rental income when in Australia?’

This is a complex decision as the financial calculation will depend on the respective tax regimes, your income, Capital Gains Tax rules in both countries, and whether the property is your primary residence.

If you choose to retain your UK property and generate rental income from it, then UK tax will be due, and you will need to use the double taxation treaty to claim tax credits. It's also important to remember that in the UK only 20% of your mortgage costs can be claimed. This compares very unfavourably with Australia where 100% of your mortgage costs can be claimed.

Moreover, if the property is your primary residence in the UK then your primary residence exemption will also be diluted, and this could result in Capital Gains Tax liability.

Given the potential complexity of the Capital Gains Tax calculation in each respective country, it's important that you seek professional advice from a international tax specialist.

The opportunity to generate rental income and potential capital growth through property ownership is of course attractive, but organising a mortgage as an expat, punitive mortgage rate differences and currency risks are all material issues that need to be factored into your thinking and your long term financial planning. Ultimately, it may prove to be simpler and more efficient to invest in assets that are more liquid.

Because it is a tangible 'bricks and mortar' asset, property remains popular, but as part of your retirement planning it's important to be aware that it may not be an optimal investment, as the capital growth you generate from the property can’t be turned into income. Only the net profit from any rental income, if you are letting out the property, will generate that income for you in retirement. In contrast, other assets such as equities, bonds, and mutual funds, are more liquid and can provide you with an income in retirement (regardless of whether the growth is from income or capital gains).

It’s important therefore to discuss your financial needs and goals with a dual qualified financial planner to arrive at the right decision for you as part of creating your long term financial plan.

4. Changes in taxation when becoming an Australian tax resident

In principle, once you’ve left the UK and become tax resident in Australia, you will not be subject to UK Capital Gains Tax (CGT). This means that you can sell most UK or overseas assets without being liable for CGT and any worldwide capital gains you generate will instead be assessable on the basis of the Australian tax regime. This also includes any currency gains on the disposal of overseas assets. The timing of the sale of your assets is therefore an extremely important factor in your financial planning.

If you retain your UK ISAs in Australia then growth realised on these assets would be subject to Australian CGT. For the purposes of tax efficiency it may therefore prove beneficial to encash them prior to leaving the UK, and to then reinvest in Australian assets once you are an Australian tax resident.

If you are in a position to set money aside for ten years or more, then an Offshore Bond could represent an attractive financial planning opportunity, as the growth generated on the funds held within the bond would then be tax-free in Australia after this period. The funds held in the bond would remain accessible to you over the course of the ten years, but if a withdrawal was made then exit charges and a tax liability would be applicable.

Before leaving the UK, other investments you might hold; such as equities, OEICs, or investment trusts (which are all subject to CGT), and Onshore Bonds (which are subject to Income Tax), need to be assessed to enable you to determine the respective Australian and UK tax liability you would incur if you continued to hold them, and decide on the basis of this whether you should dispose of these assets prior to becoming tax resident in Australia.

It may also be beneficial to consider any transfer of ownership of assets between you and your spouse prior to leaving the UK, as 'spousal transfer' with no capital gains implications is not possible in Australia.

These complex calculations require professional advice and should be discussed with your dual qualified financial advisor as part of your financial planning process.

5. Minimising Inheritance Tax (IHT)

Inheritance Tax doesn’t exist in Australia, however, as a UK domiciled expat in Australia, UK IHT – payable on the value of your estate over the IHT allowance, which is £325,000 for the 2024/25 tax year - will be liable on your worldwide assets, even as a permanent resident in Australia.

To speak with me, or one of my dual qualified colleagues, about your estate and inheritance tax planning, and how we can help you pass on your wealth to your loved ones in the most tax efficient way possible, contact us today - and to download our Guide to Estate and Inheritance Tax Planning click here.

Schedule a meeting with me today to discuss your specific circumstances and goals. I can work with you to create a clear, effective, financial plan - optimising your investments and pensions, and enabling you to embrace your new life in Australia with confidence and resilience.

Mark Plummer
Forth Capital - Head of Australasia
I specialise in helping British expats in Australia to assess their options, optimise their UK pensions and investments, and create a robust financial plan for their future life.
- View my profile
- Schedule a meeting with me

This communication is for information purposes only and does not constitute financial, legal, or tax advice. To receive advice on financial planning, wealth management and pension solutions, please schedule a meeting with us.