centennial

I am aware that this question has been asked many times and I have tried to go through many posts but couldn't figure out exact answer.

Soon we are moving to Australia on PR visa but quite anxious about what to do with our flat in London (sell or rent).

Need clear understanding about our tax liability.

Expected rental (£9500/year after eligible deductions).

I understand we wont need to pay any UK tax as the amount is less then personal allowance but we are not sure about Australian Tax.

Could someone please let me know if we would need to pay any tax in Australia at all for this rental income?

many thanks in advance,
Sandy

spouse of scouse

Hi Sandy. Wait until one of our financial gurus come along to give you some advice. But in the meantime, it's my understanding that Australian taxpayers pay tax on all income, irrespective of where it's derived from. Sorry, probably not what you wanted to hear.

There is a bit of good news though, as PR you'll also have a tax-free threshold (same as personal allowance in the UK). The link below may be handy for you - remember that you and your partner are taxed individually, so you each can have an income of AU$18,200 per year before having to pay income tax. Income that each of you receive in excess of that is taxed at the rates shown in the link.

https://www.ato.gov.au/individuals/i...ome-tax-rates/

centennial

Thank you for your response, certainly not the answer I wanted to hear . I see myself paying 37% tax as I am the sole owner of this flat moreover flat is mortgage free too. I guess it makes sense to sell it.

I never thought moving to Australia will almost cut my links with the UK.

spouse of scouse

Not sure if you have a partner, but if you do I'm almost certain that you can split the UK rental income between the two of you, for Oz tax purposes. It's not a rort - in Australia (and probably the UK too), all property forms part of the marital (or defacto) asset pool.

Also, remember that each of you pay no tax at all on the first $18,200 of your income - you could earn $100,000 a year and still pay no tax on that first $18,200.

And for God's sake don't go making any financial decisions based on my advice/thoughts! I'm only speaking from my own experience and by no means am I a tax or financial advisor. With such a valuable asset, it would make good sense for you to get the advice of a professional - you'd probably clear up your questions in one session. Best of luck!

spouse of scouse

Sandy, on a more personal level, I can fully understand your wish to retain a foothold in the UK property market. It's a dilemma I'm also wrestling with - I'm moving from Australia (I was born here) to live with Scouse in Liverpool.

I would really like to buy a flat here, in case I/we want to return in the future, but the rent I'd get would need to come close to the return if I left the money in my superannuation. However, the tax I'd pay on that rental income as an overseas owner could be as high as 50%. For that, and a few other reasons, Scouse and I are getting professional help to sort it all out before we leave.

Bermudashorts

As an accountant I find this attitude bizarre and apologies in advance for the lecture that will follow! Paying tax means you have made profits, profits are good not bad. I am convinced some people would rather be making financial losses rather than pay tax, which makes no sense whatsoever.

Your comment that you would be better off selling the flat rather than paying tax is like saying you would turn down a payrise because it means more tax. It is like saying you will shut down a profitable business because it means tax. Do you see how ridiculous this statement is when you consider it in another context?

If you want to keep your flat, keep your flat. It is another 9k of profit, less tax. If you got a extra 9k on your salary, less tax, you would be pleased I am sure.

To the original question, you declare the income on your UK tax return and if the personal allowance is still there (talk of it being removed) then no tax in UK. You also add the in income onto your Australian tax return and you will have to pay tax at your top rate on it.

Regarding splitting the income with someone else, nope you cannot do that in the UK if they are not on the title. I am going to take a punt that this would not be allowed in Australia either as there are lots of similarities in the tax laws and this just does not feel right to me.

john in oz

I concur with Bermudashorts comments (financial Planner here in OZ) that if an assets is making you money then normally you would not sell it as it is providing you funds for further investment or retirement savings. You can then use those funds to help purchase a home here for example.

Everyone's situation is different and some people coming to OZ do sell up because they need the funds from their UK home to buy a home here!

If you need help PM

centennial

Bermudashorts - you got it wrong or may be I didn't explain properly. What I meant, rather then paying 37% tax on rental income it will make more sense to sell the property and buy in the Australia. Decision should be based on ROI rather then tax avoidance.

Pollyana

Many people in Aus still own property in the uK - lots of them are on the forum. Even if you don't have property though, no-one is suggesting you cut ties with the uk. You can stil have Uk bank accounts, can still vote (for several years after you leave), can still claim State pensions, and if you hold a Uk passport and become an Aus citizen you may hold dual citizenship Plenty of ties that don't involve property

Bermudashorts

Bit cheeky that Centennial. I most certainly did not get anything wrong here. You mentioned wanting to keep a flat in the UK but then concluding you would have to sell because it would mean paying tax on your income. This is all you said. No mention of buying an Australian property at all. No mention of any decision making factors other than an illogical aversion to tax..

Seeing as you want to talk ROI, I shall assume you mean invest in an Australian property for rental, but then you would have to pay tax on that income too, at the same rate. So there is not enough information to say either way if this is a better idea, but certainly income tax has nothing to do with it. You would have to work out expected rental rates, expenses etc and take it from there.

If you mean buy to live in, then the tax point and ROI point are both completely moot anyway.

isgraham

You could use the property to borrow against in the UK, rent it out and use the funds to make a start in Australia. That's more or less what I did and the Australian tax system is very generous to landlords even of foreign properties (unless that's changed recently)

JAJ

Not clear what the problem is.

If you moved elsewhere in the U.K. and rented out the property, you would be subject to Income Tax on the rental profit. Why should you not pay Australian income tax on the profit if you move to Australia?

If you sell and re-invest, presumably you will pay tax on any resulting profits as well. Unless you take the funds and pay down debt that then saves you non-tax deductible interest.

Or, if you think Australia's income tax rates are too high, have you considered other countries to establish your future instead?

Rachelanna

You cannot split the income, in Australia at any rate. If you own the property you pay the tax. You cannot even have a loan in both names and deduct the interest against a property in one name. The tax department computers are increasingly sophisticated and linked to many other databanks. We even got a fine for an error which was made by our accountant in declaring some foreign income from a share trust in the wrong category. It had a happened about four years previously. I would strongly suggest you get some competent advice from a good accountant in person and not rely on forums for this type of complex decision.

OzSheila

Two points on this:
1. this should ideally be done before you leave the UK as trying to do it after arriving in Australia will be much more difficult and likely costlier
2. from an Australian income tax point of view, interest on any borrowings is limited to the amount of any borrowings to purchase the property originally

Alan Collett

Hi Sandy.

The UK property income is taxed in Australia under Australian tax rules.

This allows you to consider claiming a tax deduction for depreciating items within the premises.

Tax depreciation schedules are commonplace for Australian rental properties - and are also available for UK properties through the firm of Quantity Surveyors which we work with.

The QS attends the premises and details all items that have a finite useful life. A report is then prepared which has use for so long as the property is owned and there are deductions available.

The cost of the QS's report is also deductible for Aus tax purposes.

Click on the GM Tax link in my signature block if you'd like to know more.

Best regards.