In Exile

We have an investment property in the UK which is fully paid.
I am investigating the possibility of remortgaging about 50% of the property and use that 50% as a deposit to buy another house (same price band), both of which would be tennanted. One already and the new one within a few months.

Assuming that the initial property is already tennanted and has a history of being successfully let, can anyone advise whether it is possible to remotage the property with a UK institution from over here, and potentially provide a mortgage for a new investment property with about a 50% deposit?

In a nutshell: has anyone got any experiences with (re)mortgaging using a UK based company while based over in Australia?

any pointers would be most appreciated.

Safin

Not easy to do - it's called capital raising and you'll pay through the nose in interest from the few lenders that let you do it.Apparently if it has in the fairly recent past been your home and you are prepared to say you intend to return to it (intend not actually be tied into doing so) then you have a few more options.

If you find a decent way to do this please let us know.

Rambi

Just to highlight that you won't legally be able to deduct the mortgage interest against income for that particular property as the mortgage wasn't raised to pay for the property in the first place.

Good luck with it. Have you also considered approaching Australian banks about financing an overseas property?

Safin

Aus banks aren't interested as they can't enforce (generally) any default against property outside of their jurisdiction.

If that tax thing is correct then I guess all you could do would be raise the minimum required for deposit on next place and keep as much of the mortgage on the new one as poss and as little on the old one. Alternatively sell that one and start again with the capital on two new ones.

nicktork

We did this a couple of years ago. We used Woolwich (Barclays) and it was pretty straightforward to set up from here.

We only released approximately 30% of the value of the UK property though, enough to put a deposit down on our Australian home.

The other comment about not being able to claim tax on the UK mortgage is correct -- we found that the hard way, thinking we could turn our UK home into a nice tax-deductible investment property.

Koolcat

Hey Rambi, ive got investment properties back in the UK - I was hoping to find out more information about what you advised above - about not being able to claim mortgage interest if a mortgage wasnt raised to actually buy a property in the first place - Ive never come across that before so guess Id better check it out incase it applies - do you know where i could find out more about that? Any links??

Thanks so much

Koolcat

Rambi

Let me google that for you.

http://www.ato.gov.au/individuals/co...t/00113233.htm

Koolcat

Ha-ha Thanks Rambi - I had googled originally but no joy - but I was looking on UK sites as thought it was UK legislation

That link's great, your a star

Koolcat

Rambi

You're welcome. Since a few years ago (2007 off the top of my head) overseas investment properties are treated the same as local ones.

louie

Seems to be some confusion about the tax rules here.

Under both UK and Australian tax laws, if you take out a mortgage on a property and then use the funds raised to buy (some or all of) an investment property, the interest you pay on that mortgage is tax deductible (against rental income in the UK, against all income in Australia). It is your purpose in remortgaging and the use of the funds that determines the treatment.

In the example quoted, the funds raised were used to buy a new property for the owners to live in, not one which was let out, which is not what the OP is proposing.

In fact, the rules in the UK are even more generous, in that you can raise a mortgage of up to the value of the property when it was first let (not its original cost) and offset the interest against rental income regardless of the purpose to which the funds are put. So in the ATO example quoted, if say the property originally cost $300k, in the UK you would be able to claim for interest on the original $25k loan + on $275k of the new loan. Of course that's not much help if you are Australian tax resident.

Rambi

You're right. Not sure why but I thought they were buying a property for themselves. Obviously didn't read it too well. Sorry

In Exile

right, bit of an update:

These chaps:
http://www.expat-mortgages.co.uk/

gave me a call back and were fairly confident that they would be able to assist.

To remortgage a house you must have owned it for 6 months.

They offer fixed interest rates of around 3.4% but only for 2 years. On the anmount we would seek to borrow the repayments over 20 years, and even 15, were very low. Factoring in a massive interest rate rise wouldn't change them by that much either.

The eligibility criteria is fairly straightforward and it holds you in good stead if you work for a multinational company, with offices in the UK. Our company was just taken over by an enormous one with offices all over the world! Bonus.

Their lenders have a minimum deposit amount of 40%, which works for me because I only intended to release 50% of the capital, and buy a property of equal value. The repayment amounts were very low and would have been more than covered by the rent

He did mention something about the nature of the mortgage being either pure "buy to let" or "residence with intention to let" and there was some differentiation between the two, but I'd had a couple of glasses of wine by this time so I should really reclarify!!

My intentions aren't to use this as some great negative gearing/tax offset exercise. It was a transfer of currency at a point in time, which just happened to cover the purchase a house. The intention is to watch the currency for the next few years and ideally transfer it back (assuming we still live here)

As I understand I am exempt from taxation in the UK because my rental income falls under the tax free threshold. The UK/Australian tax agreement (simplistically) states that you must abide by the tax laws of one of the countries - which technically I am doing. I know some people who do this, and declare it, and are not taxed by the ATO. *NB this is a very grey area here*

I think its something that I will quite happily go ahead with. I have one fully paid house, which could fairly easily be turned into two or maybe three mortgaged properties with rent covering mortgages. Worse case scenario I will use someone like Northwoods who offer rental guarantee (which again would cover the cost of the low mortgage repayments), obviously at a much lower rent rate, but based on the potential tenant feedback and interest for our first property I dont think this will be necessary.

I feel comfortable doing it because the level of borrowing is relatively low. I would have second thoughts if my intention was to realise a capital gain from UK property and I was trying to maximise borrowing.

I definitely shouldn't have had all that wine when I spoke to him though.

Safin

Are you really sure that you don't have to declare the rental income. Although the UK don't want a bite of it as it is below your UK threshold the ATO tax you on worldwide income. So surely this uk income would be added onto your AU income? If I am wrong I'll be very happy as we've paid AU tax on our uk income, even that below the threshold

In Exile

this is why i said its a grey area. its down to the wording which I am researching into myself to make sure, but I know a couple of expats who do this, and declare it, and dont pay tax here because they are abiding by the tax rules of the UK.

It does strike me as a bit strange, because its not like the ATO to want to tax as much as possible.

Kiwipaul

You have to declare your rental income to ATO but if your expenses and mortgage payments exceed your income you don't get taxed in Oz. I've been doing this for 10 years.
On sup Tax return 20A you enter your gross rental return without any deductions. If your rent is greater than your deduction you enter the difference at 20R.

My deductions have always been greater then my rent and I've never been taxed on it.