All posts by GM Tax

Company Residence – Central Management and Control – Australian Tax Office Issues New Ruling

A limited company that is not incorporated in Australia is a tax resident of Australia under the central management and control test of residency if it:

  • Carries on business in Australia; and
  • Has its central management and control in Australia.

If a company has its central management and control in Australia, and it carries on business in Australia, it will carry on business in Australia within the meaning of the central management and control test of residency.

As per the ATO’s new Ruling: “It is not necessary for any part of the actual trading or investment operations from which its profits are made to take place in Australia.

This is because the central management and control of a business is factually part of carrying on that business.

It follows that a company carrying on business does so both where its trading and investment activities take place, and where the central management and control of those activities occurs.”

Becoming a tax resident of Australia can have significant consequences for a company, particularly if income or capital gains are to be derived from outside Australia.

Tax Treaty considerations are also likely to be a factor resulting if a company is a resident of Australia under the central management and control provisions, as many companies that become a tax resident of Australia as a result of these tests will then become dual residents: the company is also likely to be a tax resident of the country in which it was incorporated.

All in all, this is not a subject for the faint hearted!

Contact GM Tax if you have concerns in this area.

Changes to UK’s Deemed Domicile Provisions

From the start of the new UK tax year – ie from the 6th of April, 2017 – significant changes affect non-UK domiciled individuals, with the introduction of new deemed UK domicile rules for individuals who have been UK resident for more than 15 of the previous 20 years.

Part tax years and split tax years will be treated as years of residence for this test.

The existing deemed UK domicile rules apply to individuals who have been resident in the UK for 17 of the previous 20 years and attach only to inheritance tax ; the new rules will be extended to include income tax and capital gains tax.

Any who are covered by the new deemed UK domicile rules will have to report their worldwide income and gains to HM Revenue in the UK on an arising basis.

A new concept of a returning UK domiciliary is also being introduced.

Individuals who were born in the UK and who had a UK domicile of origin will be classified as a returning UK domiciliary under the proposed rules.

Non-UK-domiciled individuals who will have been UK resident for more than 15 of the previous 20 years on the 6th of April, 2017 should consider their position as soon as possible.

Ditto for those who had a domicile of origin in the UK, who have acquired a non-UK domicile of choice after spending a number of years away from the UK, and who will be resuming tax residence in the UK on or after the 6th of April, 2017.

We invite any who are concerned about their UK tax position to complete the enquiry form on this page for a free initial discussion.

UK IHT Residence Nil Rate Band is on the way

The UK’s Inheritance Tax Residence Nil Rate Band (RNRB) is introduced at the start of the forthcoming UK tax year – ie on the 6th of April, 2017.

The RNRB is an amount of a deceased’s estate that is free of IHT in addition to the standard nil rate band of (currently) £325,000.

An estate will be entitled to the RNRB if:

  • an individual dies on or after the 6th of April, 2017
  • the individual owns a home, or a share of one, so that it’s included in their estate
  • the individual’s direct descendants – such as children or grandchildren – inherit the home, or a share of it
  • the value of the deceased’s estate is not more than £2 million

An estate will also be entitled to the RNRB when an individual has downsized to a less valuable home, or has sold or given away their home after the 7th of July, 2015.

The maximum available amount of the RNRB is to increase each tax year.

For a death in the following tax years the RNRB will be:

  • £100,000 in 2017/18
  • £125,000 in 2018/19
  • £150,000 in 2019/20
  • £175,000 in 2020/21

In  later years the maximum RNRB will increase in line with inflation.

Any unused RNRB when someone dies can be transferred to the deceased’s spouse or civil partner’s estate.

This can also be done if the first of the couple died before the 6th of April, 2017, even though the RNRB wasn’t available at that time.

For estates valued at more than £2 million, the RNRB (and any transferred RNRB) will be reduced by £1 for every £2 that the value of the estate is more than the £2 million threshold.

If you are concerned about UK Inheritance Tax and whether your estate continues to affected – even if you are now living in Australia – please complete the enquiry form on the right of this page.

Have you sold your UK Property?

With the introduction of the new rules effective for disposals after 6 April 2015 you will need to report the disposal on a NRCGT return (Non-residents Capital Gains Tax Return) and pay any CGT due if any within 30 days of the day after the date the property has been conveyed.

If you are already within the UK’s self-assessment (SA) system for income tax and CGT, you will need to report the disposal on a NRCGT return within 30 days with payment being made as part of your normal end of year tax payment (i.e. after completing your self assessment return) or you will also have the option to pay at the time of reporting.

  • All disposals must be reported to HMRC irrespective of whether there is a tax liability and regardless if the property qualifies for Primary Residence Relief or Letting Relief.
  • The property can be valued retrospectively (i.e. by the estate agent upon sale) or by a professional valuer. A professional valuation will be the least challenged by HMRC.
  • Any tax suffered in the UK would be available to be offset on your Australian return up to the amount of Australian tax due.

HMRC have imposed a strict penalty regime for late submissions so we urge you to contact us today if you have a property in the UK that you are in the process of selling or have already sold.

UK Inheritance Tax – It can affect those living in Australia too

UK Inheritance Tax (IHT) doesn’t go away if you move to Australia or become an expat – at least it doesn’t immediately.

This is because the liability of an individual’s estate to UK IHT is a function of the individual’s domicile status in the UK, rather than residency.

Note: Inheritance Tax is a tax on the estate of someone who has died.  The basics of IHT are discussed in a separate post here.

Anyone who is domiciled in the UK is liable to IHT on their worldwide assets.

Those who are not domiciled in the UK are only subject to UK IHT on estate that is located in the UK, such as real estate in the UK, or bank accounts maintained in the UK.

There are 3 types of domicile under UK tax law for adults:

  • A domicile of origin.  When a person is born, s/he acquires the domicile which his/her father considered to be his real or permanent home at the date of your birth.  If the individual’s parents were not married when s/he was born, the domicile of origin is usually the same as the mother’s.
  • A domicile of choice.  To acquire a domicile of choice:
    • The person must show that s/he has settled permanently in the jurisdiction in which s/he now considers him/her self domiciled.
    • The person must intend to stay there for the rest of his/her life.
  • A deemed domicile.  You are treated as being domiciled in the UK if you:
    • Were resident in the UK for 17 of the last 20 UK tax years, or
    • Had your permanent home in the UK at any time in the last 3 years of your life

Importantly, changes – the UK Government terms these as “reforms” – are on the way in respect of domicile.

These changes are discussed here.

Under these proposed changes – which are expected to become law from the 6th of April, 2017 –  a deemed domicile in the UK will arise when an individual has been a resident of the UK for 15 out of the last 20 UK tax years, rather than the 17 out of 20 years that pertains now.

Consideration is often also required of tax residency in the UK.

Since the 6th of April, 2013 the UK has had a Statutory Residency Test (SRT) in place, which provides a measure of certainty  over a taxpayer’s residency status in the UK, particularly when departing the UK to live and/or work overseas, or arriving in the UK to live and/or work.

While providing certainty, the SRT is complex, and for those seeking clarity on their domicile status when departing the UK the exercise is also likely to require a consideration of UK residency status.

While few of us like contemplating our own mortality, we recommend that those who are living in Australia with estate valued at more than the IHT nil rate band consider taking professional advice if there is a wish to ensure that as much of one’s estate as possible is passed onto our loved ones.

This should include a consideration of taxes arising on death in Australia: while Australia does not have an equivalent to Inheritance Tax, an estate can find itself subject to capital gains tax in Australia when investment assets of the estate are bequeathed to a person who is not a tax resident of Australia.

This can be overcome – often through the use of  what is called a testamentary trust – but again, professional guidance will be desirable, alongside a consideration of the drafting of a Will, most probably  in Australia and the UK.

With tax advisors who are qualified in the UK and Australia GM Tax is ideally placed to advise on the issue of domicile for tax purposes, and Wills planning.  

We invite all who are concerned about this issue and who would like to plan such that the beneficiaries of their estate inherit as much as possible to complete the enquiry form on this page.

We will be delighted to have a free initial no obligation discussion with you.