[UK Neil]

Hi,

we have just sold our house and are not long away from finally getting to NZ. We are thinking of investing some of the money in some sort of managed fund before we leave. Will this be taxed in the UK as income (assuming it makes money)? even if we have 'not ordinarily resident' status? I know we can avoid tax on savings by filling in the R105 but is there anything similar for money earned in funds?

If it is subject to UK tax, is there a way of avoiding it by investing in some sort of offshore fund which would bring it into NZ jurisdiction and avoiding it through the 4year rule for offshore earnings in NZ?

Cheers for any help,
Neil.

[isv]

If it were me... I'd keep it offshore. Most UK funds are subject to UK taxation on the dividends etc. they receive and this will impact the amount of growth you see.

Why not put it in an offshore fund with a UK institution and hence ensure you receive the gross returns free of tax? Naturally if you are careful this will also be entitled to the 4yr NZ tax exemption - but don't forget that you don't actually have to disclose your offshore investments to the NZ taxman during this period. I'd stick it offshore and just let it quietly build up gross...

Also note that leaving large sums of £££ (or a property) back in the UK could be a bit of problem if the UK taxman decides to question your non-resident or (especially) your domicility status - if for any reason they decide you have not made a clean break with no intention to return you could find yourself 'temporarily non-resident' and UK domiciled... Which is definitely NOT what you want to be.

Alan.

[MarkS]

I'm not sure that offshore funds are necessary here - you'll probably get charged more than you would for a regular fund, and I'm not sure they bring much benefit. If you're worried about the UK taxman, you can put up to 14000 pounds into ISAs straightaway (assuming there's two of you, as you're limited to 7000 pounds each). The ISA will guarantee it's tax free from the point of view of the UK taxman (while obviously making no difference to the NZ taxman). The NZ taxman shouldn't care anyway for the next few years as you'll get the 48 months new residents exception (although I have heard some mutterings about non-NZ investments becoming taxable after three years, which you should check out closer to the time).

So personally, assuming I wasn't expecting to touch the money for a few years, I'd stash the first 14000 pounds into two ISAs, and if there's any left over, put the rest either into a non-ISAed fund, or leave it in whichever bank pays the highest interest and won't deduct tax once you've given them the forms (Nationwide for example ignore your R105 and deduct tax anyway, which is then a hassle to claim back).

As an aside, domicility is irrelevant here. If you're UK domiciled there's almost nothing you can ever do to change that. You would need to show no connection to the UK at all - no family, no holidays, no property, no intention of ever coming back - and no connection over the last few years (if not decades!). If you're UK born it's verging on the impossible to lose UK domicility.

Mark

[incredible hulse]

Mark - not sure why Nationwide are hitting you for tax; they've not taken a been off me in 18 months

[MarkS]

Really? Our understanding was that it was their company policy to not do so. For example, see http://www.nationwide.co.uk/about_nationwide/listening_to_you/talkback/online_member_talkBack.htm

The R105 HM Revenue & Customs form allows a 'not ordinary resident' saver to receive interest without tax taken off. At its introduction, financial service providers were given a choice over whether to adopt it or not. Because we have a dedicated subsidiary that offers tax free savings to members living abroad, we decided to opt out of the scheme.

Anyway, we're not too fussed as there's only a small amount of money left in there. Still annoying to pay more tax than we need to though! (of course, I could fill in the forms to get it back, but.....)

[incredible hulse]

Just checked mine and it appears I filled out R85 (incorrect form I know)

[Caroline and Dave]

Hi Neil,
If I was you I would contact Jeremy Henderson from Broadbase. We and several other members of this forum use him and he is excellent. He has many years experience in the UK and now runs his financial advise business in NZ.
I am sure he will be able to advise you.
http://www.broadbaseinternational.com/

Hope this helps

Dave and Caroline

[Rabbit]

Perhaps consider Ishares (Electronic Traded Funds) with low fees...

Or even consider based on your UK incomes for the year, pay a 100% pension contribution and receive maximum tax relief. Perhaps in a SIPP.

Also maximise your investment in UK ISA's.

If you invest online, you can trade in a wide variety of funds.

Avoid UK unit trusts with a bid / spread.

Where there is a commission paid consider fund supermarkets.

If you engage a Financial advisor make sure if you are paying a fee for advice or if they are recieving a commision.

Do not put all your eggs in one basket, and think about short and longer term needs.

Rabbit.

[isv]

...
As an aside, domicility is irrelevant here. If you're UK domiciled there's almost nothing you can ever do to change that. You would need to show no connection to the UK at all - no family, no holidays, no property, no intention of ever coming back - and no connection over the last few years (if not decades!). If you're UK born it's verging on the impossible to lose UK domicility.

Mark

Mark, With respect I disagree. Domicility is hugely relevant to anyone moving to NZ - especially if there are large sums of money involved.

It is possible to lose your UK domicile status without too much trouble. But as you suggest you must make a clean break from the UK and in particular divest yourself of any UK assets. Visting for occasional holidays is fine - sending your kids to a UK boarding school is not...

The key thing is that of *intent* - it must be clear to anyone that you have left the UK with no intention of returning (which is the case with most migrants).

One of the many financial benefits NZ can offer is the absence of any inheritance tax. Once you have NZ domicility then your estate will be free of tax. In contrast if you retain UK domicility your entire world wide assets will be subject to UK inheritance tax - regardless of where you live.

Alan.

[asterix]

Hello
Can someone point me in the direction of where I can read about the 4 year offshore rule mentioned above.
Many thanks

[IanW99]

How about this link:- Temporary Tax exemption (http://www.ird.govt.nz/technical-tax/legislation/2006/2006-3/leg-2006-3-temp-exempt-tax-migrants.html)

Ian

[UK Neil]

Thanks for all the replies, Caroline and Dave i will check out that link you sent, that could be really useful, thanks.

Just an aside on those saying stick some in an ISA, its not really worth it is it? If i put it in a savings account and fill in an R105 i will get a higher rate than i would in an ISA wouldnt I?

Basically we are looking to invest a large lump sum from the house sale for a year until we are settled over there and then buy/build a house. I can get 6.3% in a savings account from ICCI and if i fill in the R105 then i will get 6.3 in my hand. It sounds like any dividend paid on money made in a uk managed fund will be treated as income and taxed by the uk. I think it sounds like the thing to do is use a fund managed offshore to avoid any tax at all.

If that sounds wrong to anyone then please burst my bubble!
Cheers,
Neil.

[Paul]

Thanks for all the replies, Caroline and Dave i will check out that link you sent, that could be really useful, thanks.

Just an aside on those saying stick some in an ISA, its not really worth it is it? If i put it in a savings account and fill in an R105 i will get a higher rate than i would in an ISA wouldnt I?

Basically we are looking to invest a large lump sum from the house sale for a year until we are settled over there and then buy/build a house. I can get 6.3% in a savings account from ICCI and if i fill in the R105 then i will get 6.3 in my hand. It sounds like any dividend paid on money made in a uk managed fund will be treated as income and taxed by the uk. I think it sounds like the thing to do is use a fund managed offshore to avoid any tax at all.

If that sounds wrong to anyone then please burst my bubble!
Cheers,
Neil.

To spread your risk don't invest more than about £35k or so in any one bank as you would only be covered by FSA upto that sort of level (and only 90% of most of that anyway). Seems to be plenty of choice of regular instant type deposits offering over 6% at the moment although some you do have to be UK tax resident from memory

www.moneysavingexpert.com will have latest best deals

Best of luck

[MarkS]

Just an aside on those saying stick some in an ISA, its not really worth it is it? If i put it in a savings account and fill in an R105 i will get a higher rate than i would in an ISA wouldnt I?

Basically we are looking to invest a large lump sum from the house sale for a year until we are settled over there and then buy/build a house. I can get 6.3% in a savings account from ICCI and if i fill in the R105 then i will get 6.3 in my hand. It sounds like any dividend paid on money made in a uk managed fund will be treated as income and taxed by the uk. I think it sounds like the thing to do is use a fund managed offshore to avoid any tax at all.

If that sounds wrong to anyone then please burst my bubble!
Cheers,
Neil.

No, putting it in an ISA isn't particularly worthwhile. The only reason I brought that up was that Alan (isv) raised a potential issue of the UK taxman still considering you resident even after you've moved to NZ. I would be very surprised if that were an issue, but if it were, the UK taxman is never going to tax you for money in an ISA.

Anyway, if you're non-resident in the UK, you shouldn't be paying tax in the UK at all. Interest and dividends are not any different here - dividends from a UK based managed fund will not be taxed if you're non-resident. So from a UK tax point of view, putting your money into a savings account or into a managed fund should be exactly the same.

However, if you're only stashing the money away for a year or so, you shouldn't even be considering a stock-market based fund (which is what I assume you're talking about given you mention dividends). There would be significant risk of a reduction in your capital over that time - if you're happy with that then fair enough, but the normal advice is that you should only be considering stock market investments for money that you're unlikely to need in the next five years or more. (Apologies if I'm pointing out the obvious here!) So personally I would just go for the high interest savings account approach, and whether that's with an onshore UK bank or one of their offshore subsidaries is pretty irrelevant, the interest rate is all that really matters (as long as they do accept your R105, so check that first!)

Paul's point about the £35k limit is true, but I would suggest a bit irrelevant. True, if your bank went bust overnight the government guarentee wouldn't cover you past that limit - but that's pretty unlikely to happen!

As for the domicility issue, Alan is probably right and I probably did overstate how difficult it is to lose UK domicility. It still can be difficult in some cases though (and a potentially lengthy court case if the Revenue contests it). The main point though is that it's only particularly relevant to inheritance tax, and has nothing to do with the income tax issue that Neil was asking about.

Hope that helps.
Mark

PS - Hulse, thanks for the R85 tip. You clearly managed to find a loophole to their loophole!

[Nick88]

Have you looked at the savings interest rates here? You can get 8-8.25% quite safely, if you take tax off of that you would be down to 5.5-6.6% net depending on your tax rate.

I have asked in the past at the ASB about foreign currency savings accounts and it is not a problem. You can then change the money into NZ$ as and when you are happy with the exchange rate and need it, all with just a phone call.

I don't understand why you would want to complicate matters with ISAs and overseas banks, it would reduce your flexibility considerably. I have looked at sending money overseas, but the returns here in NZ are so high even after tax that I just couldn't justify the hassle.

[Super_BQ]

I don't understand why you would want to complicate matters with ISAs and overseas banks, it would reduce your flexibility considerably. I have looked at sending money overseas, but the returns here in NZ are so high even after tax that I just couldn't justify the hassle.

I think we've overshadowed an important issue. If a person were to return back to NZ to take their 4 year tax exemption status, would it be wise to FULLY disclose all you overseas assets to IRD??? I mean it may be attractive that you'll get 4 years tax free on the gains of such 'foreign' investments, but a more crucial aspect is that, the taxman now knows about your overseas investments and it's whereabouts.

Anotherwords, is it wise to "show all your cards on the table"?

It's interesting to hear how UK establishes residency much the same way as in Canada. All based on "economic and family ties" in addition to being absent for more than 183 days in a year.

[Nick88]

I wasn't sure if it was frowned upon in the forums to suggest such a thing. But yes, the IRD can only tax you on something they know about.

[Paul]

I wasn't sure if it was frowned upon in the forums to suggest such a thing. But yes, the IRD can only tax you on something they know about.


Mmmm isn't the onus (like the UK) on the tax payer to disclose all relevant items for their tax return - self assessment is called that for a reason. If you are found out not to have fully disclosed your affairs in any year you could be liable to penalties and interest when the situation is finally discovered (ie in a tax investigation, or by the IR requesting information from off shore banks like they have in the UK recently)

Might be different in NZ of course

[constablechuck]

NZ is big on voluntary compliance, however as a small country the different agencies are well linked, for instance IRD and Customs, if they want to know when you enter and leave NZ they can find out, as for overseas income and assets they may just give you enough rope to hang yourself, if your living beyond your means as disclosed in your NZ return then how do you explain it ? why risk being prosecuted and losing your PR.

[Paul]

Plus one further point - a lot of people bringing in a chunk of equity that they may wish to keep growing tax free under the exemption for 4 years, presumably are likely to use a large amount, if not all of this when they eventually buy a house? So presumably no problem in telling IRD about the money as it will have been spent by the time the 4 year period runs out surely!

[Nick88]

Since writing this I have looked at the rates overseas and unless you pay the top rate of tax you might as well bring your money into NZ. The savings interest rate is so high that even after tax you are much better off, and you don't have any of the hassles of dealing with an overseas bank.

I suspect the 4 year rule is to make NZ as money-friendly as possible, so that new immigrants do bring their funds in with them. NZIS recognise that it can take time to sell businesses and property overseas. After all they need the new immigrants more than the immigrants need them.