philAsh

Hi all, hope someone can give me some advice i am emigrating over to australia in August with my family and have a house here in the UK, i am looking to sell it but with the market like it is over here there is not many houses selling, could i rent it out or would i get hammered for TAX.
Hope some one can help me in this matter
Thanks Phil

abi31

There would be tax payable on the income - but once you've taken off mortgage and other costs the profit may well be below any thresholds. The main issue would be CGT at 40% is you have a lot of equity in your house and if you leave it rented for long enough for it to not be considered your main residence (eg I think it would be an issue if you bought in Oz) - I'm sure someone will be along to let you know the timeframes

roaringmouse

If a house isn't selling, it's been priced too high. Value is determined by what the buyer is willing to spend, not what the seller hopes to get.

Bermudashorts

What is your definition of "being hammered for tax"?

You will pay tax on profit, you're least paying tax means you are making profit which is a good thing, although I am convinced there are people that would rather make aloss so that they can claim some tax back.

Sue

Hi Phil,

Can't help with your query, but just wanted to pop by and say hi and welcome you to our little community. Now you've found us I hope you will stick around.

Beoz

I was wondering the same thing.

You will be taxed and whatever money you make in profit .... bit like you are from the income you earn from your job. If you don't make a profit then no tax.

StSabre

Only the interest portion of your mortgage can be deducted.

The CGT exemption always applies for the last 3 years of ownership (as long as it has been your main residence at some point) - buying in Oz won't affect it. There is also another relief called letting relief which may reduce the CGT bill even after 3 years.

Chortlepuss

It's all down to the interest component of your mortgage - My interest is really low as I am mostly repaying the property and I get hammered for tax. Income from my property is wiped out by my mortgage and expenses - but I make a 'paper' profit (i.e. my mortgage is being paid off but I see no actual $ benefit apart from any increase in property worth - ha ha!). So I'm in the position where I have to find 30% tax of income on a property which is non income earning (if you see what I mean?). If your interest proportion of your mortgage is very low (i.e you're at the end of your mortgage and it's nearly paid off) I'd recommend you try to re-mortgage if you have use for the equity, or you sell. Personally, I love my house in the UK but it's a pain in the @rse managing it long distance and if we weren't returning to the UK soon I'd be looking at selling

Bermudashorts

You are not making a "paper profit". You are making a real profit.

You might however be cashflow neutral or negative when you look in your current account ... tax is not based on to cashflows however, not anywhere I know of.

You have a mortgage account (currently in debit) and a current or savings account (hopefully in credit). Each month you transfer some money from your savings or current account to your mortgage account. And the balance on one of them goes down and the balance on the other goes up. But there is NO CHANGE to your overall wealth through this transaction alone. You have just moved money between two accounts.

On the other hand, you receive rental income each month, so your wealth goes up. And then you are charged some mortgage interest and other expenses perhaps so your wealth goes down. If the rental income is bigger than the mortgage interest then overall your wealth increased more than it decreased. We call this a profit and most government insist that you pay tax on this profit.

As you have moved money from your current or savings account, which you have high visibility of, to your mortgage account, which no doubt you have less visibility of, you might end up feeling poorer. But you are not. Because you now owe less.

I am in the same situation as you. My current account sees negative cashflow every month as the rental income that comes in, is about the same or in fact a bit less than the mortgage payment that goes out. But that is mainly because I am moving money to pay off the large debt. Accordingly, it is very clear to me that whilst my cashflow on my current account is negative, my overall wealth is definitely increasing and accordingly, I pay tax on it. Several thousand dollars last year.

I am no more "being hammered" for paying tax on this than I am being hammered when I pay tax on my employment income.


Edit And it definitely makes no business sense whatsoever to change your mortgage so that you are paying more interest just so that you can pay less tax. It makes about as much sense as asking your employer for a pay cut so you can pay less tax!

Kiwipaul

Yes it will as you will become liable for CGT on the UK property at the point that you purchase a property in OZ. You can only claim 1 Principle Place Of Residence (PPOR that is free of CGT) at any one time and so owning 2 houses means 1 is going to be liable for CGT in OZ.

CGT is only payable once you sell the property so get the house valued in the UK when you purchase a property in OZ. If you rent in Oz no problem as you can claim your UK property as your PPOR for 6 years (according to OZ tax rules. UK might be different).

StSabre

I was referring to the UK CGT position, which must still be considered when you come to sell the property.

JAJ

Note that if you outside the U.K. for 5+ years (full tax years) you normally don't need to concern yourself with U.K. CGT except in specific instances.
http://www.hmrc.gov.uk/cnr/faqs_capgains.htm

There will still be an Australian CGT issue to consider (if you're Australia tax resident, especially if you are PR/citizen).

ktyler1961

Charity, Assets And Residence
Residency
St Johns House Unit 353
Room 230
Merton Road
Liverpool L75 1BB
United Kingdom
Tel + 44 (0)151 4726208/6209
8.30 to 17.00 Monday to Friday
Fax + 44(0)151 4726149
www.inlandrevenue.gciv.uk
DX 726358

Hi mate,
See above some contact info, best to phone really, have a good chat and ask all your questions. These are the contact details for the Inland Revenue Non-Resident Landlord Scheme.
Basically, you need to get a tax number from them before you go to give to your rental agent so that you can pay your own tax via self assessment. You can do this very easily online using the Inland Revenue website. If you don't get this number your rental agent is legally obliged to automatically deduct 25% from the rent and pay it to the taxman. By getting the number you are in control. Once you have the number it is yours for life.
I have been out of the UK twice in the last six years for a period of one year at a time. Before I went I increased my mortgage so that I didn't make as much profit, you can offset mortgage interest payments and include them as an expense on your tax return. Nevertheless, if you don't want to do this you also have to remember that the earnings before tax in the UK are around £8000 to £9000 a year, so if your total rent/profit doesn't go above that level then you are OK anyway.
Another piece of advice for you, and one to definitely persue along with the tax number for the Non-residents Landlord Scheme, you can fill a form out before you leave informing the Inland Revenue that you are leaving the country. If you are out of the UK you won't be liable for tax anyway mate. I think the form is a V85 form. Anyway, contact the Inland Revenue about that. When you ring up the menu is a pain but just hang on to speak to someone, they are good. Or use the Inland Revenue website.
The best thing to do first though is ring the contact number I gave you above. That office is based in Liverpool and I am from Manchester so it's the closest to me. I don't know where you live but I'm sure they will put you through or give you a number.
Another tip. Keep your rent very competitive, without ripping yourself off, and you will probably have a longer term tenant, hence, less hassle and stuff to worry about whilst you are away. Pick a good agent too.
Good luck.
Kev

Mrs Vash

I've rented out my UK house for 3 years because I couldn't sell it prior to us moving. If people aren't buying, then people will rent. Agree with Kev - keep your rent low as is affordable for you because you'll keep your tenant - I've had the same tenant for almost 3 yrs.