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tax on money in an australian account

tax on money in an australian account

Old May 8th 2002, 3:00 pm
  #16  
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Default Re: tax on money in an australian account

Hi again newstart.

You declare the interest on your UK/Aussie Tax Return in the tax year in which it is actually credited to your bank account. Tax is then payable on the usual due dates by way of a payment to the tax authorities.

I can't answer the question why people in the UK deposit funds offshore - maybe in the belief that it isn't taxable ...? One possible advantage from a cashflow perspective is that you defer the payment of the tax on the interest income, potentially allowing you to earn interest on the tax that would otherwise have been deducted at source, giving a small compounding bonus.

Best regards.



Alan C

Originally posted by newstartnz
Alan, I bow to your tax expertise...

Sorry if I am dragging this out, but I did say I am not a tax expert.
So, if you earn interest in your offshore account and are UK tax resident, must you declare it in your tax return for the year it is earned? Or when you remit it to the UK?

Why do many UK residents deposit money in offshore interest free deposit accounts if it is not legal to defer tax liability until the money is remitted to the UK? The interest rates often seem inferior to those obtainable in the UK.

IR20 6.2 does not actually mention WHEN the tax becomes liable to be paid and the advice I have seen says that liability may be deferred.

I understand the thorny domicile issue.

Thanks.
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Old May 8th 2002, 3:08 pm
  #17  
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Default Re: tax on money in an australian account

Hi again newstart.

You declare the interest on your UK/Aussie Tax Return in the tax year in which it is actually credited to your bank account. Tax is then payable on the usual due dates by way of a payment to the tax authorities.

I can't answer the question why people in the UK deposit funds offshore - maybe in the belief that it isn't taxable ...? One possible advantage from a cashflow perspective is that you defer the payment of the tax on the interest income, potentially allowing you to earn interest on the tax that would otherwise have been deducted at source, giving a small compounding bonus.

Best regards.



Alan C

Originally posted by newstartnz
Alan, I bow to your tax expertise...

Sorry if I am dragging this out, but I did say I am not a tax expert.
So, if you earn interest in your offshore account and are UK tax resident, must you declare it in your tax return for the year it is earned? Or when you remit it to the UK?

Why do many UK residents deposit money in offshore interest free deposit accounts if it is not legal to defer tax liability until the money is remitted to the UK? The interest rates often seem inferior to those obtainable in the UK.

IR20 6.2 does not actually mention WHEN the tax becomes liable to be paid and the advice I have seen says that liability may be deferred.

I understand the thorny domicile issue.

Thanks.
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Old May 9th 2002, 12:35 pm
  #18  
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Default Re: tax on money in an australian account

Alan, thanks again, informative as usual. You said:

'I can't answer the question why people in the UK deposit funds offshore - maybe in the belief that it isn't taxable ...? One possible advantage from a cashflow perspective is that you defer the payment of the tax on the interest income, potentially allowing you to earn interest on the tax that would otherwise have been deducted at source, giving a small compounding bonus. '

So I am just a wee bit confused again, does that mean it is legal to defer paying tax on the interest income after all? Until when would it be legal to defer? (Just a few months, ie the difference between a bank doing it immediately at source and you to declaring it in your tax return? Or longer?)


Thanks.
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Old May 9th 2002, 1:31 pm
  #19  
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Default Re: tax on money in an australian account

newstart,

You can defer the tax on the interest by investing offshore, but you don't stop it being taxable if you are resident, domiciled, etc etc.

Best regards.



Alan C

Originally posted by newstartnz
Alan, thanks again, informative as usual. You said:

'I can't answer the question why people in the UK deposit funds offshore - maybe in the belief that it isn't taxable ...? One possible advantage from a cashflow perspective is that you defer the payment of the tax on the interest income, potentially allowing you to earn interest on the tax that would otherwise have been deducted at source, giving a small compounding bonus. '

So I am just a wee bit confused again, does that mean it is legal to defer paying tax on the interest income after all? Until when would it be legal to defer? (Just a few months, ie the difference between a bank doing it immediately at source and you to declaring it in your tax return? Or longer?)


Thanks.
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Old May 9th 2002, 4:20 pm
  #20  
Rob
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Default Re: tax on money in an australian account

Alan Collett wrote:

    >newstartnz wrote:

    > > So I am just a wee bit confused again, does that mean it is legal to defer
    > > paying tax on the interest income after all?

UK banks will tax interest on the day it is deposited into your account (unless
you're a non-taxpayer who has registered as such with the bank).

Offshore banks pay the interest in full. It's then your responsibilty to declare the
tax in a self-assesment tax return. This is how it can work..

April 30th 2002 you get 100 pounds in gross interest from an offshore bank. April
5th 2003 is the end of the tax year Apr 6 2002 - Apr 5 2003. By the 30th September
2003 you must submit a self-assesment form, let's assume you declare the 100 in
interest and that you're a 40% taxpayer. By Jan 30th 2004 you must pay 40 pounds to
the inland revenue.

So you held on to the 40 quid for 21 months and it has earned some more
interest for you.

For some people (like me) who end up owing the taxman lots of money at the end
of a year, the taxman then asks for up-front payments so that you're no
deferring significant sums for many months into the future and paying almost no
tax in the meantime.

    >You can defer the tax on the interest by investing offshore, but you don't stop it
    >being taxable if you are resident, domiciled, etc etc.

The jury is still out on that one. I've asked my tax advisor for a definitive answer.
It's been a while since he explained it to me, but I think he said that as long as
the money isn't going to come into the UK it's not taxable. The catch I beleive is
that some people might say the money won't enter the UK but "change their minds" at a
later date, and the Inland Revenue aren't sympathetic to the excuses, so in most
cases it makes sense to declare it and pay tax on it.

I had offshore interest that was going to come into the UK so it got declared. Now
that I'm planning to go to Aus, my tax advisor will talk with his company's Aus
branch to find the best way to proceed.
 
Old May 10th 2002, 12:59 am
  #21  
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Default Re: tax on money in an australian account

Hi Rob.

Just coming back to you on the point about the "jury being out" on whether the income is assessable. This is definitely NOT SO - if you are UK resident, ordinarily resident and domiciled and don't declare interest income that:

- arises (ie is credited to your account) before you emigrate, and
- has not been fully taxed at your relevant personal UK rate, and
- arises anywhere in the world

you are evading tax => breaking the law.

To confirm once again, assessability of interest income is not a matter of remitting the income back to the UK, given that you are UK resident, ordinarily resident, and domiciled.

Read Inland Revenue booklet IR20 and look at the table beneath para 6.24:
http://www.inlandrevenue.gov.uk/pdfs...htm#investment

As to the payments on account situation it is worth remembering that you can apply to reduce your payments if you expect that your tax liability for the year for which you are making on-account payments will be less than that for the previous tax year - which may well be the case if you are emigrating during that tax year.

Feel able to mail me if you want to discuss further.

Best regards.


Originally posted by Rob

    <i><font size=-2 color=darkgreen>>You can defer the tax on the interest by investing offshore, but you don't stop it</font></i>
    <i><font size=-2 color=darkgreen>>being taxable if you are resident, domiciled, etc etc.</font></i>

The jury is still out on that one. I've asked my tax advisor for a definitive answer.
It's been a while since he explained it to me, but I think he said that as long as
the money isn't going to come into the UK it's not taxable. The catch I beleive is
that some people might say the money won't enter the UK but "change their minds" at a
later date, and the Inland Revenue aren't sympathetic to the excuses, so in most
cases it makes sense to declare it and pay tax on it.

I had offshore interest that was going to come into the UK so it got declared. Now
that I'm planning to go to Aus, my tax advisor will talk with his company's Aus
branch to find the best way to proceed.
[/B]

Last edited by Alan Collett; May 10th 2002 at 1:05 am.
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Old May 10th 2002, 11:20 am
  #22  
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Default Re: tax on money in an australian account

To add two points:

    >On Thu, 09 May 2002 15:40:33 GMT, rob <[email protected]> wrote: Alan Collett wrote:
    >>newstartnz wrote:
    >
    >> > So I am just a wee bit confused again, does that mean it is legal to defer
    >> > paying tax on the interest income after all?
    >
    >UK banks will tax interest on the day it is deposited into your account (unless
    >you're a non-taxpayer who has registered as such with the bank).

I understand that UK banks (based in the UK) now will generally not accept bring
non-resident in the UK as grounds for payment of gross interest (ie, without
deduction of tax at source), although those who made such arrangements with their
bank prior to 2001 will not be affected.

Any UK tax deducted can be reclaimed if you have no UK tax liability - or it may be
offsettable against Australian tax due on the same sum.

    >
    >Offshore banks pay the interest in full. It's then your responsibilty to declare the
    >tax in a self-assesment tax return. This is how it can work..

Bear in mind that interest rates paid by UK banks on offshore accounts are often
lower than their onshore equivalents, unless the sum is over GBP50k or thereabouts.

Jeremy
 

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