Originally posted on: 29 October 2024
Updated on: 6 October 2025
Introduction
Last week, I had a Teams call with a Kiwi looking to move to the UK.
He had questions about getting set up in the UK as a contractor, understanding how a limited company setup works, the common ways to extract income from a UK limited company, and the long-term tax planning options available to him.
In what seems to be a pretty common scenario these days, this contractor had been working as a sole trader in New Zealand for several years, with an Australian client. Now, as he plans to relocate to the UK, he intends to continue working for his Australian client while based there. This arrangement provides him with a secure source of work and the flexibility to move to other parts of the world while still working for the same Australian client.
In this blog article, we’ll cover this scenario, focusing on his circumstances: he has a rental property in New Zealand, is moving to the UK to work as a contractor, and plans to eventually return to New Zealand after spending a significant period abroad. Although the names and locations in this blog article have changed, the facts remain the same.
Understanding the Scenario
Brad is 29 years old and currently lives in Christchurch.
He is a software developer, working as a sole trader in New Zealand for an Australian client. He has been contracting with this client for several years and intends to continue doing so for the foreseeable future.
Soon, he will be moving to the UK for an undetermined period—potentially as long as ten years or more. While in the UK, he will continue contracting for his Australian client and may also explore additional work opportunities in the UK or Europe, depending on how things progress.
Three years ago, he bought a rental property at Sumner Beach, which he intends to keep while living and working overseas.
Tax Residency
One of the first things I always consider with this scenario is tax residency.
We always advise our clients that having a single tax residency is much simpler in terms of reporting requirements and tax planning. In this particular case, we know that Brad will not have a permanent place of abode in New Zealand once he leaves, and he intends to be away for more than 325 days. For these reasons, it’s fair to assume that his New Zealand tax residency will cease on the day he departs.
Regarding the UK, his tax residency will most likely commence on the day he arrives, as this is where he plans to base himself for the foreseeable future.
In the UK, there are three tests to determine when a newly arrived individual becomes a tax resident:
- The first test states that if an individual is in the UK for 183 days or more in the tax year they arrive, they are automatically UK tax resident from the day they land. However, they may not meet this threshold depending on when they arrive within the tax year.
- If they fail this first test, the second automatic UK residency test typically applies. Although there are three elements to this test, essentially, if you arrive in the UK and plan to reside there for the foreseeable future, you become a UK resident from the day of arrival.
Clarifying tax residency assists with tax planning. Based on the above, we know that any income Brad earns while living and working in New Zealand remains taxable in New Zealand, and any income earned after his arrival in the UK will be taxable in the UK. This maintains a clear distinction regarding where his sole trader income is taxed.
Additionally, while Brad is a UK tax resident, any New Zealand-sourced income he earns will remain taxable in New Zealand—in this case, his rental property income. A helpful way to view this is to consider any income earned within New Zealand’s borders while living abroad. This includes dividends from New Zealand companies, interest from New Zealand banks, and rental income from New Zealand property.
Due to the double taxation agreement between New Zealand and the UK, this income won’t be taxed twice. And although Brad will be a non-domiciled UK resident, it will likely benefit him to report his New Zealand-sourced income on his UK tax return each year, receiving a tax credit for any tax already paid on that income.
Working in the UK Through a Limited Company
Setting up a new company in the UK is straightforward and can easily be done online. If you know what you’re doing, the whole process takes around ten minutes, and the company is usually formed within 24 hours.
In Brad’s case, he would like us to provide accounting and tax support for his contracting activities, so we’ll be forming his limited company for him free of charge.
The next step is to open a business bank account. Most often, our new clients apply for bank accounts either with an established UK bank they already have a relationship with or with one of the new online banks, such as Starling, Revolut, Wise, or Tide. The business bank account can only be opened once the limited company has been formed, and the account-opening process is generally very quick.
These days, opening a business bank account with an online bank doesn’t require a branch visit (as they don’t have any physical branches) and can usually be done from your phone.
For Brad, once his limited company and business bank account are set up, he’s ready to start trading.
We have numerous blogs about setting up a limited company and opening business bank accounts. We’ve also previously discussed tax-effective ways to extract money from a business, so I won’t cover those details again here.
Suffice to say, No Worries Accounting will assist Brad with all his tax planning questions, including which expenses he can claim, how capital allowances work, and how to use our online Joy Pilot cloud accounting software. We’ll also help answer the myriad of questions that new contractors typically have within the first three to six months of contracting through a UK limited company.
“…the service has been fabulous.”
Ah Mike, we think you’re pretty fabulous too!
Maintaining a Rental Property in New Zealand
We now regularly receive inquiries from Kiwis living in the UK who have a rental property back in New Zealand. So, I’d like to cover the basics here in relation to Brad.
Firstly, he must continue to file a New Zealand tax return, reporting his rental property income and paying any tax on that income to the IRD in New Zealand.
What some Kiwis don’t realise is that while they are living and working in the UK, rental property income must generally also be reported on a UK tax return. This is because, as a UK tax resident, you are typically required to report your worldwide income on a UK tax return. There are exceptions for non-domiciled individuals (and these rules may be changing), but there are pros and cons to using this non-dom status. After analysis, we find that the most tax-effective strategy for most clients is to report their New Zealand rental income on their UK tax return. Some UK—based Kiwis incorrectly believe that if they are paying tax on the rental property in New Zealand then they don’t have to report it in the UK.
One key issue is that the calculation of taxable profit on a rental property differs between New Zealand and the UK. As we’ve covered in a previous blog, depreciation and mortgage interest costs are either disallowed or restricted under UK rules, which means the taxable profit reported on a UK tax return is often higher than that reported on a New Zealand tax return.
Another common issue that Kiwis living in the UK face is the potential exposure to UK capital gains tax if they decide to sell their New Zealand property while still UK residents. This can be particularly problematic, as there is no capital gains tax in New Zealand, making it an issue that Kiwis living in the UK need to be aware of.
In Brad’s case, he understands his New Zealand reporting requirements for his rental property, the UK reporting requirements for his NZ rental property, and the capital gains risk if he were to sell the property while living in the UK (though he doesn’t currently plan to sell it).
Limited Company Retained Funds
An important consideration in Brad’s scenario is that he earns a high hourly rate and doesn’t need all of his income for day-to-day living costs. Working through a UK limited company creates more tax planning opportunities for Brad than working as a sole trader in New Zealand would.
As a sole trader, all his income would be taxed as it is earned, with no flexibility in the timing of payments or usage of funds. In contrast, with a limited company, any income he doesn’t need can remain in the business bank account, allowing for various tax-efficient investment options. For example, he could consider putting company funds into a managed fund or making tax-free contributions into a personal pension fund.
In Brad’s case, he intends to continue working and accumulating funds in his business account. While he’s uncertain about his exact living expenses in the UK, let’s estimate that he will have a surplus of £25,000 each year left in his business bank account.
Ten Years of UK Contracting
Currently, Brad is uncertain about his long-term plans. He may stay in the UK for several years or possibly relocate elsewhere in Europe after some time.
Let’s consider a scenario where Brad continues to work in the UK for ten years, retaining £25,000 annually in his business. Over the ten-year period, No Worries Accounting will handle all of Brad’s company reporting requirements, including the preparation and filing of annual accounts and company tax returns, as well as payroll filings for his company.
We’ll assess whether VAT registration is necessary or beneficial for him and ensure his Confirmation Statement is filed on time each year with Companies House. Additionally, we’ll manage any inquiries from Companies House or HMRC regarding the operation of his limited company, we will also handle all postage by making his company registered office address our office address, and will supply any mortgage or reference letters that he requires.
Throughout this time, we’ll also keep him up to date with any significant tax and accounting changes that may impact limited company contractors working in the UK.
After ten years, his company would have a surplus of £250,000, and with investment returns, this could grow to £300,000.
At this stage, if Brad decides to return to New Zealand, he has a highly tax-efficient option for extracting those funds from his UK limited company once he has relocated.
Transitional Tax Residency Rules in New Zealand
After Brad has returned to New Zealand, he will qualify for the temporary tax exemption on most foreign-sourced income for up to four years. This exemption is available to transitional tax residents, which includes new migrants to New Zealand and returning New Zealanders who have been abroad for at least ten years.
The exemption covers income attributed under the FIF (Foreign Investment Fund) rules, benefits from employee share schemes earned while working overseas, rental income from overseas, overseas interest and dividends, and several other categories of income.
The important one here for Brad is that overseas dividends are included in the exemption.
Timing is absolutely critical here but done properly, Brad can extract the £300,000 in retained earnings from his UK business and pay to himself as a dividend in New Zealand. Under the transitional tax rules this dividend payment will be completely free of any New Zealand and UK personal taxes, making it a very attractive option for him.
Practical Steps for Kiwis Planning to Return Home
The biggest impact in tax planning comes from starting early. In Brad’s case, he reached out before even arriving in the UK, so after a conversation, he already had a good understanding of UK taxation and potential tax planning opportunities for his eventual return to New Zealand.
Sometimes, we speak with clients who are much further down the line, and this can significantly limit their options. There’s absolutely no downside to getting in touch with us early to have a quick conversation about your UK earnings, assets, and how they might translate when you move back to New Zealand.
Summary
In our blog today we have addressed the tax planning options for New Zealanders, like Brad, who plan to work in the UK as contractors while maintaining assets back in New Zealand. Brad, a Kiwi contractor with an Australian client, is moving to the UK, where he’ll work through a UK limited company. We cover his UK tax residency, the tax treatment of his New Zealand rental property income, and long-term planning options.
Brad can benefit significantly from the transitional tax residency rules if he returns to New Zealand after ten years abroad. By accumulating income within his UK company, Brad can use these rules to extract dividends tax-free upon his return to New Zealand. This strategy allows Kiwis to maximise their UK earnings while taking advantage of tax-efficient opportunities upon returning home. For any Kiwi contractors moving to the UK, early tax planning is essential and the team at No Worries Accounting are ideally placed to help.
FAQ’s
1. Why should I consider using a UK limited company as a contractor?
A UK limited company offers tax-efficient ways to retain income you don’t need immediately. By keeping surplus funds within the company, you can control the timing of income distribution and potentially reduce your overall tax liability. This also opens opportunities to invest retained earnings or make tax-free pension contributions.
2. How does the double tax agreement between New Zealand and the UK affect my taxes?
The double tax agreement (DTA) ensures that income isn’t taxed twice in both countries. For instance, New Zealand-sourced income, like rental property income, remains taxable in New Zealand but generally won’t face double taxation in the UK. You may be required to report the income in both countries but can receive a tax credit in the UK for any tax paid in New Zealand.
3. Do I have to report my New Zealand rental income on my UK tax return?
Yes, as a UK tax resident, you’re typically required to report worldwide income, including rental income from New Zealand. Although New Zealand taxes this income, reporting it on your UK return allows for transparency and ensures you are reporting your worldwide income correctly in the UK.
4. What is the transitional tax residency rule in New Zealand, and how does it benefit me?
When you return to New Zealand after ten years abroad, you qualify for a four-year tax exemption on most foreign-sourced income, including dividends from overseas companies. This allows you to take dividends tax-free from your UK company, making it a tax-effective strategy if you plan your return to NZ and can meet the transitional tax residency requirements.
5. What happens if I sell my New Zealand property while I’m living in the UK?
Selling property while you’re a UK resident could trigger UK capital gains tax (CGT) on the sale, as the UK taxes worldwide gains for residents. This is significant since New Zealand doesn’t typically impose CGT, meaning planning around property sales can help minimise unexpected UK tax costs.
6. Is it better to report my New Zealand income on a ‘remittance basis’ as a non-domiciled UK resident?
The remittance basis allows you to exclude certain foreign income from UK taxes if you don’t bring it into the UK. However, using this approach has complexities and trade-offs, and it may not always be the most tax-efficient strategy. Seeking tailored advice from us based on your income sources and long-term plans is essential.
7. When should I start planning my tax strategy if I plan to return to New Zealand?
Ideally, start planning before you move to the UK. Early planning ensures you understand the tax implications of your income sources and how to structure your affairs for future tax efficiency. This proactive approach is key to maximising the tax benefits available to you both in the UK and on your return to New Zealand.
8. How can No Worries Accounting support me as a contractor in the UK?
No Worries Accounting provides full support for Kiwis contracting in the UK, from setting up a limited company to handling company filings, tax planning, and long-term strategies for returning home. We also offer tailored advice on UK and New Zealand tax compliance, ensuring you make the most of your time as a UK resident. Seriously, if you’re a Kiwi contractor in the UK and you are not using our accounting service, then you need to have a stern word with yourself 😊
“…the service has been fabulous.”
Ah Mike, we think you’re pretty fabulous too!