Australian tax on UK rental
 

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

Re: Australian tax on UK rental
 

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/

Re: Australian tax on UK rental
 

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.

Re: Australian tax on UK rental
 

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!

Re: Australian tax on UK rental
 

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.

Re: Australian tax on UK rental
 

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.

Re: Australian tax on UK rental
 

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

Re: Australian tax on UK rental
 

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.

Re: Australian tax on UK rental
 

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 :)

Re: Australian tax on UK rental
 

Bit cheeky that Centennial. :huh: 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.

Re: Australian tax on UK rental
 

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)

Re: Australian tax on UK rental
 

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?

Re: Australian tax on UK rental
 

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.

Re: Australian tax on UK rental
 

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

Re: Australian tax on UK rental
 

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.

Re: Australian tax on UK rental
 

If you have to operate under Australian tax rules you need to get a valuation of the property from the time of it becoming a rental property so as to calculate capital gains tax when you sell it. We have just obtained one in conjunction with a depreciation schedule for
an investment property. The cost of the depreciation schedule is well worthwhile.

Re: Australian tax on UK rental
 

Many thanks to everyone for your reply.

In the end we have decided to sell the flat and use it as deposit for our new home in Australia.

We have bought this flat in Oct,2012 for £122k and spend around 4-5k on renovation. This property has been our primary residence (no other property owned). We are selling it for £150k plus now (thanks to price boom in London area).

I am wondering if we need to pay capital gain tax on the profit as this is our primary residence and we are planning to use the sum to buy new home in Sydney.

any idea on CGT please ?

Re: Australian tax on UK rental
 

If I may say something, I would NOT sell any property in the UK. If, by any chance, you decide to return to the UK (like me for instance) you will be mighty happy that you didn't. But of course, it is your choice and my best wishes of good luck, whatever your choice.

Re: Australian tax on UK rental
 

You won't pay CGT in the UK or Oz on it as it was your primary residence AND you will have sold it before becoming a Oz tax payer. Just send the money over to Oz before you arrive and it will be in your bank account here waiting for you.

Re: Australian tax on UK rental
 

I'm amazed at how many British expats I speak to have rental properties in the UK and don't declare on their Oz tax returns.

Re: Australian tax on UK rental
 

If they're on temp visas they don't need to. It's those who have PR who will have a problem.

They'll have to keep those properties a secret from the ATO for ever. They'll never be able to regularly send the rental income to Australia and they'll never be able to sell them and bring the funds over. Not without triggering plenty of questions and possibly a little audit from the ATO, anyway.. :lol:

Re: Australian tax on UK rental
 

They are PR.

Re: Australian tax on UK rental
 

Maybe direct such persons to the ATO's Project Do It:
https://www.ato.gov.au/General/Corre...treaty_network

What some may not also know is that a tax deduction can be claimed on UK property for depreciable items, and if this generates a rental loss the loss can be offset (negatively geared) to generate a tax repayment in Australia.

Best regards.

Re: Australian tax on UK rental
 

But due to no negative gearing in the UK many rental income from properties covers the mortgage and more. Which is the way an investment should be. Rather in Australia where the taxpayer foots the bill. That rubbish needs to stop. The only people that benefit are the investor and the renter - people like me who get to live in 1.3 million dollar property for next to nicks. I'd still rather see NG abolished. Its unfair.

Re: Australian tax on UK rental
 

So are you not persuaded by the argument that negative gearing and the CGT discount creates investment in property that in turn increases the number of rental properties?

If this is a good thing, why would you do away with it?

Remember also that for Australian property the interest paid by an investor is interest received by the lender - on which the lender (eg a bank) pays tax.

Best regards.

Re: Australian tax on UK rental
 

Why does NG increase the number of rental properties? All it does is create a massive gap between rent and mortgage repayments. Without it that gap would decrease. People would still invest. Or better asked, why would they not invest without NG? Sure you may say it wouldn't be worth investing upon its removal, but the market will eventually sort itself out leaving those who pay tax and don't want to support a discriminatory benefit better off.

Re: Australian tax on UK rental
 

That's an interesting one, and I've heard it a few times since I've lived in Australia. I disagree because without NG, house prices wouldn't be so pumped up - meaning that more people would be able to afford to buy and resulting in less demand for rental properties.

Re: Australian tax on UK rental
 

... and with a fall in demand for property you might reasonably anticipate property prices would also fall.

Now some would say that is a good thing.

Others might have a concern about the wider impact on the economy of prices being stagnant or falling in the housing sector.

Best regards.

Re: Australian tax on UK rental
 

An issue of more pressing concern - IMO - is investment in Australian real estate from overseas and the failure on the part of the FIRB and the ATO to get on top of the issue.

There seems to be a complete lack of control over compliance with FIRB regulations and the reporting of income tax (on rentals)/CGT (on disposal) by non residents.

Best regards.

Re: Australian tax on UK rental
 

There's always going to be those unexpected consequences. I wonder if the cheaper rentals was the original intention of NG or whether it was intended to create a boom in the property sector? One thing for sure is the average one home owner is more indebted to the banks than ever before and for first time buyers, unless they're on a meaty income its harder than ever to get onto the housing ladder.

Regards.

Re: Australian tax on UK rental
 

Tax breaks on mortgage interest for lower paid first home owners makes more sense to me than the tax breaks given to investors.

Agree about foreign ownership of investment properties - the FIRB are a joke.

Re: Australian tax on UK rental
 

So are they compliant in the United Kingdom? Which means completing a form NRL1 (to avoid withholding) and then a U.K. tax return? Details of which could be passed to the ATO.

In any case, it's likely that from April 2015, they will lose the personal allowance and then will have to pay U.K. tax on the rental profit. Which could normally be offset against Australian tax - if that was being paid, in the first place.

Re: Australian tax on UK rental
 

I agree, and that's a great suggestion. :cool:

Re: Australian tax on UK rental
 

Or looking at it another way, prices continue to be near the most expensive in the world based on a salary ratio. One day something will cause a pop, and the higher it is the further it will fall causing a great deal of damage. Best to control it now. On top of that you have all the grey hairs sinking their super into property, muscling out the youth. One day these grey hairs will die but before they do you have a whole generation not into property. Again not healthy and riddled with future bad impact..

So the govt should really look at options here. Perhaps they could look at current NG users stay as they are. But from a certain date all new investors cannot take advantage of NG. Prices stagnate or come down slower than abolishing all together. That lost generation can jump on in, rents rise a little as they should. Minimise the impact.

As for the foreign investor crap, yes its a joke that its not controlled but the stats say that foreign investment accounts for very little of ownership. Perhaps we just look at all the Chinese lining up for a property in Eastwood and think its rife. They could be residents.

Re: Australian tax on UK rental
 

Why not jack up the taxes on second (and subsequent) homes as well as any residential properties owned by non-residents to cool down the market?

Norway does a very good job at ensuring that the property market doesn't play a similar role to the stock market, with properties becoming "investments" to speculate on, just as if they were stocks, currencies or gold.

Re: Australian tax on UK rental
 

I'm sure a lot of them are (residents), but I don't think there's any doubt that Chinese investment in Australian real estate, particularly in Sydney and Melbourne, is higher than it's ever been and climbing. That's companies, as well as 'Mum and Dad' investors. A couple of articles I found interesting:


ABS admits data on foreign real estate buyers is 'hit and miss' - ABC News (Australian Broadcasting Corporation)
Chinese investors are pushing into Melbourne and Sydney

Re: Australian tax on UK rental
 

Don't get me wrong. If there's demand for foreign investment, tax it and pile the money back in towards those who live in the country. A foreign investor would unlikely have a local taxable income to offset NG against anyway so they can't take advantage of that welfare. As your article points out the data is hit and miss.