Income Tax after a year overseas - double hit?

[motco]

A member of my family is currently working abroad for a year. HMRC have said that he must declare his foreign income on his return to enable a tax assessment to be made. The salary he is being paid is already taxed by the local equivalent of HMRC with no prospect, as I understand it, of it being reimbursed when he leaves next year.

The question for tax experts is how can he avoid (legally) the double tax hit? He is in Australia so language difficulties don't exist, but there is no bureaucracy quite as rigid as the Australian variety, I gather.

[Eric Mc]

There is a Double Taxation Agreement between the UK and Australia so he will not suffer double tax on the income that has already been taxed in Australia. He will receive a tax credit for the Australian Tax already paid and will just pay additional UK tax if any additional UK is is due..

An example

Australian salary £80,000
Australian Tax paid - £15,000

Full UK tax due on Australian salary - £17,000
Less:
Australian Tax already paid £15,000

Balance due to UK HMRC - £2,000

These figures are only an illustration. I have not attempted to calculate the ACTUAL amounts of tax due on an income of £80,000.

[motco]

Eric, you are a gentleman, many thanks! I have to admit that t'was you who I had hoped would respond, your being an accounts expert.

[sumo69]

He should ask the Aussies for a certificate of tax paid as the UK HMRC may ask for thisw as evidence for his Double Tax Relief claim.

David

[motco]

sumo69 said:

He should ask the Aussies for a certificate of tax paid as the UK HMRC may ask for thisw as evidence for his Double Tax Relief claim.

David

Thanks David, I'll pass that on too.

[Mr Pointy]

Going off piste a bit what would happen in the following case:

Salary - £80,000
Tax paid - £19,000
Full UK tax due - £17,000
Less Tax already paid - £19,000

Does HMRC give you £2000 back?

[sumo69]

No - any double tax credit relief is restricted to the amount of UK tax due on the income.

David

[LC23]

If he is a tax resident of Australia then he should look at article 4 of the treaty. He may actually tie break to Australia under this assuming he has also remained UK tax resident. If so article 14(1) or 15(1) will give sole taxing rights to Australia. I can't remember which one it is in the UK Australia DTA

[LC23]

Article 14(1)

[Sideways Rich]

What's the scenario if you're out of the UK for 2yrs plus say in Singapore, are you still subject to income tax?

I thought you were only liable for CGT in the UK if you returned within 5 years?

[Eric Mc]

If you are out of the UK for a complete UK tax year i.e. 6 April to following 5 April you will generally not be liable to UK tax on foreign income earned in that tax year.

However, the UK taxation of foreign income is very complicated and you really need to speak to a specialist in the area if your affair are even the slightest bit complicated.

[motco]

That's his problem; he went in February and returns the following February.

[Sideways Rich]

Eric Mc said:

If you are out of the UK for a complete UK tax year i.e. 6 April to following 5 April you will generally not be liable to UK tax on foreign income earned in that tax year.

However, the UK taxation of foreign income is very complicated and you really need to speak to a specialist in the area if your affair are even the slightest bit complicated.

Thanks Eric, I'll be out for at least 2plus tax yrs, I did get advice before I left, my poor memory let me down here.

Thanks for the reply.