UK expats and migrants who are NZ tax residents must return overseas sourced income unless they qualify for transitional residency status (i.e. four-year foreign income exemption – find more information here.)
There are, however, two exemptions to the rule, which include foreign employment and foreign personal services income. This means, for example, that if the UK expat/migrant continues to receive UK employment or personal services income after arriving in NZ, they might still be required to return this income in their NZ income tax return.
The NZ income tax treatment for foreign-sourced income can also differ from the income tax treatment of NZ sourced income. Here are a few examples:
- Interest expense limitation on residential rental does not apply to UK properties
- UK superannuation withdrawal may be subject to the foreign superannuation withdrawal rules
- Foreign dividends may be taxed under the foreign investment fund rules
- Foreign denominated loans may be subject to the financial arrangement rules
If foreign income had been omitted in the past years, the return of foreign income to IRD for the relevant period might result in IRD imposing both use of money interest and penalties.