UK tax traps

UK Tax traps for Australian expats

Australia has a tax treaty with the UK but things aren’t as simple as they may seem at the outset. Expats working in the UK can still fall into some UK tax traps.

Resident or tax resident?

Residency is more complicated in the UK than it is with any other country. On the surface, the UK resident test makes you a UK tax resident if you live in the UK for 183 days or more in a year. On top of this, however, there is also a UK ties test. If you are deemed to have significant ties to the UK and live in the UK for less than 183 days in a year then you may still owe tax to the UK government.

The key distinction here is that a UK tax resident is subject to tax on their worldwide income, whereas a non-resident will be taxed only on their UK income.

Salary packaging

One way to get around this is with salary packaging. By adding some benefits on to your salary such as flights, accommodation and meals, your employee tax return can be mitigated. The added benefit of this is that it will ensure that you do not have any residence in the UK that could be deemed a permanent residence. Salary packaging can help you to avoid becoming a UK tax resident and owing tax on your worldwide incomes.

Retirement plans

Retirement plans also need to be considered when you are working abroad in the UK. Employer contributions to a superannuation are not taxable in most cases but there will be tax levied on unusual or irregular payments by employees or employers.

This means that your superannuation payments will need to be pre-planned to ensure you can contribute enough without paying the tax on this. You should also consider taxes on withdrawing these funds because pension takings can be taxed by the UK government if you are classed as a UK tax resident. This could significantly impact on your retirement plans.

Despite the tax treaty between the UK and Australia, there are still some tax traps that you need to be alert to and wary to avoid. IF you have any questions or if you need some Australian taxation advice, please feel free to contact our friendly team at Expat Tax Services.

Shane Macfarlane
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Shane Macfarlane

CEO & Founder at Expat Tax Services
Shane's an Australian Chartered Accountant and Australian expat tax specialist who's also an expat himself (based in Asia).Shane's passionate about tax and legitimate tax minimisation, particularly as it relates to Australian expats who are often subject to high rates of tax back home in Australia.Beyond tax and accounting, Shane's an entrepreneur, having devised, created and founded a successful accounting startup, Fifo Workpapers (acquired by accounting software giant, Intuit inc. in 2013)

In short Shane's a tax and software techno-geek, who recognised that Australian expats were unable to obtain the specialist advice and quality service, that they needed from their accountants. Accordingly, Shane founded Expat Tax Services to provide Australian expats with access to specialist, quality advice at fair and reasonable prices (no hourly rates, fees quoted upfront with unlimited support included) . . . receive the support and advice you need without having to take second-mortgage to pay your accountant's bill! Speak to Shane & the team today.
Shane Macfarlane
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