Tax Planning: Kiwis Managing Overseas Investments

I recently had a Teams meeting with a young Kiwi couple who moved to London in late 2023. They had questions about their tax residency status and, more importantly, how to handle their New Zealand-based investment portfolio now that they’re UK residents. They intend to move back to NZ in 2026, so they want to make sure they are not falling into any tax traps unnecessarily.

This scenario is becoming increasingly common as more New Zealanders move to the UK while maintaining investments back home. The main issue inevitably hinge around capital gains tax, because NZ does not have one, whereas the UK does.

In today’s blog, I’ll explore their situation and the tax planning opportunities available to them. While the names and specific details have been changed for privacy, the tax principles and planning strategies remain accurate.

We’ll also take a look at an interesting quirk of the UK tax system where one of the Kiwis is largely unaffected by losing their UK personal allowance.

Understanding the Scenario

Lucy and Ted arrived in London in September 2023 after leaving New Zealand in July. Both secured full-time employment in the UK, with their income being taxed through the PAYE system. For UK tax purposes they are considered non-doms (tax resident, but not domiciled in the UK).

Before leaving New Zealand, they had invested in US shares through Sharesies, a popular New Zealand investment platform. They did this over several years while living in NZ, but have not purchased any further shares since leaving NZ. In this case they had done amazingly well with a handful of stocks, their investment is now worth USD$500,000.

They plan to stay in the UK until late 2025, after which they intend to travel for an extended period before eventually returning to New Zealand.

They want to crystallise some of their investment gains (especially after having done so well), and also want to free up some money to help build a house back in NZ. Their main concern was understanding the tax implications of selling their shares while being UK residents, and what impact (if any) there would be in NZ also.

Tax Residency Status

One of the first things we needed to clarify was their tax residency status. In their case, it was relatively straightforward:

1. They left New Zealand in July 2023
2. They have no permanent place of abode in New Zealand
3. They have been outside New Zealand for more than 325 days

Based on these factors, they are no longer considered New Zealand tax residents. This is important because it affects how their investments will be taxed. Their NZ tax residency ceased on the day they flew out of the country, and as with most conversations we have in this area, its much easier from a tax planning perspective to be tax resident of just one country at a time.

The UK tax residency rules are fairly simple to understand for this couple, and its clear they became UK tax resident on the day they arrived in the UK.

Currently, as UK employees with tax deducted through PAYE, they don’t need to file UK tax returns. However, this might change depending on when they decide to sell their investments.

Investment Considerations

Here’s where things get interesting. Lucy and Ted’s investments, although purchased through a New Zealand platform, are in US-based shares.

As UK tax residents, any dividend income they receive from their investments is foreign income.

If they sell any of the shares, the sale will be subject to UK capital gains tax. We have mentioned this in previous blogs as well – the capital gain is calculated from when they purchased the shares (while still living in NZ) so the impact of selling them and being subject to UK capital gains tax could be a nightmare – especially if they are thinking of returning back to NZ soon.

As UK residents, they need to consider UK capital gains tax implications. This is where careful timing and tax planning become crucial.

NZ Tax Impact

Let’s quickly talk about the NZ tax rules for owing shares in US companies while being NZ tax resident (having re-read this section now) it gets a bit ranty, so if you are not a NZ tax resident, just skip this section 😊

Firstly, we have the FIF rules. Where you own shares outside of New Zealand and Australia and where the cost of those shares exceeds NZD50,000 your investment runs into the FIF rules. In my opinion they are a peculiar set of outdated rules which unnecessarily tax Kiwis on their decision to diversify their investments outside of New Zealand and Australia. And I would be willing to bet the compliance rates for paying this tax is low. There are five different methods to calculate the tax due from FIF rules, yes, five.

Next, if the US investments returned dividend or interest income then this would be taxable income in New Zealand. Often these investments are already taxed to some degree, and it’s likely any tax already paid can be used to offset the tax bill when reporting this income on a New Zealand tax return.

Finally, we have the capital gains tax. Well, there isn’t a capital gains tax in NZ, but if the IRD determine you are a share trader, rather than investor, then any gains from selling your investments will be taxed at the usual income tax bands. The key term here is “were the shares purchased for the purpose of disposal”. I think most people buy shares with the intention to dispose of them at some point, that is the whole point of enjoying the liquidity that a sharemarket offers. The latest IRD draft interpretation statement “Income tax – Share investments” attempts to address this, but does so by calling on case law that is over 30 years old. The scenarios presented indicate that most people who buy and sell shares on a share trading platform in NZ should be taxed on any gains they achieve. Not having a capital gains tax, while trying to tax capital gains, will always produce unusual results like this.

UK Tax Planning Options

There are two distinct scenarios to consider, each with different tax implications. This couple weren’t sure when they are going to sell their shares, and so wanted to understand the impact of selling them both before 5 April 2025, and also after.

Scenario 1: Selling Before 5 April 2025

If Lucy and Ted sell their shares before this date, they can utilise the remittance basis of taxation because they are non-domiciled UK residents. The 2024/25 tax year is the final year that the remittance basis can be used. Under this approach:

1. They won’t need to report the gains in the UK if the proceeds aren’t brought into the country
2. They will lose their personal allowance and annual exempt amount for capital gains tax
3. The sale proceeds must stay outside the UK (which suits their plans as they intend to use the funds in New Zealand)

To claim the remittance basis, they would each file a UK tax return where they indicate their non-domiciled status and claim for the remittance basis.

Scenario 2: Selling After 5 April 2025

This timing becomes particularly attractive due to new legislation announced in the Autumn Budget. After 5 April 2025:

1. They can benefit from the new four-year exemption for foreign income and gains (FIG)
2. While they’ll still lose their personal allowance and annual exempt amount, they’ll have more flexibility
3. Unlike the remittance basis, they can bring the funds into the UK if needed (though this isn’t relevant in their case)

Under the transitional FIG rules, they get to enjoy whatever is left of their four year exemption period after having arrived in the UK. In their case they arrived in the Uk in late 2023, so they can still use the new FIG rules for the 2025/26, and 2026/27 tax years.

Tax Cost

Let’s have a quick look at what it means for each person in this scenario to lose their personal tax allowance when using either the remittance basis or the new FIG rules. As part of this, they also lose their capital gains annual exempt amount but often this has little impact from a tax perspective (it’s the loss of the personal allowance which typically has the most impact). The figure below use 2024/25 tax rates, and assume the employee is paid full-time, with the usual 1257L tax code.

Salary 1: £40,000

Tax increase with no Personal Allowance: £2,974

Salary 2: £80,000

Tax increase with no Personal Allowance: £5,028

Salary 3: £120,000

Tax increase with no Personal Allowance: £785

Salary 4: £160,000

Tax increase with no Personal Allowance: £0

Using the illustration above you can see the impact over four different scenarios for a tax payer who loses their personal allowance, and in a quirk of the UK tax system (taxpayers lose £1 of personal allowance for every £2 in earnings exceeding £100,000) for those who earn over £125,140 they have already lost their full personal allowance so the impact of using the remittance basis (for FIG in 2025) is zero.

Tax Return Requirements

The timing of the share sale affects their UK tax reporting obligations because without the share sale there would be no requirement for them to file a UK tax return.

If selling shares before 5 April 2025:

1. They’ll need to register for self-assessment
2. File a UK tax return for the 2024/25 tax year
3. Make the remittance basis claim

If selling after 5 April 2025:

1. Registration for self-assessment can wait until after this date
2. They’ll only need to file a return for the 2025/26 tax year
3. This return can’t be submitted until after 6 April 2026

Summary

This case study highlights several key considerations for Kiwis moving to the UK while keeping investments back in NZ:

1. Understanding your tax residency status in both New Zealand and the UK is critical for effective tax planning
2. The timing of investment sales can significantly impact your tax position, especially if you plan to return to NZ
3. Non-domiciled status in the UK provides planning opportunities through the remittance basis, but the 2024/25 tax year is the last year this will be possible.
4. The new four-year exemption for foreign income and gains (starting April 2025) offers additional flexibility for managing overseas investments
5. UK tax return requirements depend on when you sell your investments and which tax treatment you choose
6. Early tax planning is essential – speaking with an advisor before making investment decisions can help you understand and optimise your tax position

For any Kiwis planning to move to the UK or those already here with overseas investments, we recommend getting professional advice early. The team at No Worries Accounting specialises in cross-border tax matters and can help you navigate these complex decisions. 😊

Frequently Asked Questions

Q: When do I stop being a New Zealand tax resident?

You generally stop being a NZ tax resident when you have no permanent place of abode in New Zealand and have been outside the country for more than 325 days.

Q: Do I need to file a UK tax return if I’m employed through PAYE?

Not necessarily. If your only UK income is from PAYE employment, you typically don’t need to file a return. However, you will need to file if you sell investments or have other income sources.

Q: What is the remittance basis of taxation?

It’s a tax treatment available to UK non-domiciled residents where foreign income and gains are only taxed if brought into the UK. However, you lose your personal allowance when claiming this.

Q: What’s changing in April 2025?

The remittance basis is being replaced with a new four-year exemption for foreign income and gains (FIG). This will allow more flexibility in bringing funds to the UK while still providing tax advantages.

Q: How does losing my personal allowance affect me?

The impact varies based on your income level. Surprisingly, if you earn over £125,140, there’s no impact as you’ve already lost your personal allowance. For lower earners, the cost it felt more directly.

Q: Do I need to worry about New Zealand tax on my overseas investments once I’m no longer a NZ resident?

Generally no. Once you cease being an NZ tax resident, you’re not subject to NZ tax on overseas investments (except for certain NZ-sourced income).

Q: When should I register for UK self-assessment?

You should register when you know you’ll need to file a tax return. If selling shares, this would be in the tax year of the sale. It’s better to register early to ensure you have everything in place.

Q: What’s the best timing for selling overseas shares if I’m planning to return to NZ?

This depends on your specific circumstances, but selling either under the remittance basis (before April 2025) or under the new FIG rules (after April 2025) can be advantageous.