jansibar

Hi there,

I'm looking for some advice or opinions on our current situation/dilemma..!

We've just found out that we will probably be coming into some inheritance money, back in the UK, although not sure how much yet.

We have 2 properties - a small flat in the UK with a tenant covering the small-ish mortgage each month; and a property in Australia where we live with a large mortgage!

What we're wondering is, do we pay off the mortgage in the UK with the inheritance money? if so, where does that leave us from a tax point of view??
(I think we'd be looking at selling the flat in the next few years anyway....to get it off our backs!)

or are we wiser to bring most/all of the money out here to put towards our Australian mortgage? and if so, are we affected by tax over here instead??

pretty clueless about all of this! just hoping that this money can make our lives a bit easier at the moment...which would be nice!!

many thanks for any feedback.
cheers
Jenny

Fardell

Hi Jenny

I think it's probably worth getting a bit of tax advice regarding your situation from someone who does both UK and Oz tax. But generally, the situation is that if you have any debt it should be on your investment property, not your own home, since the rental property interest is tax deductible. So, using the money to pay off your largish mortgage is probably going to be preferable.

Simply bringing money out of the UK into Australia wont attract tax - the only thing to consider is that the exchange rate is not "brilliant", although it has improved a tad lately. I would never advise people to try and time the forex market though; never managed to do it myself successfully.

F

jansibar

Thanks Fardell....that's a great help.
thanks for taking the time to reply.

cheers

KJCherokee

When my father died my brother (in the UK) sorted out the estate including paying all the UK tax due, so when he sent me my share I used it to clear my mortgage in Australia and had no tax liabilities here at all.

Bermudashorts

I am not sure what tax issues are being referred to above, I think the tax situation looks pretty straight forward and in fact I don't think there are any tax implications of particular note.

I daresay your Australian mortgage interest rate is higher than your UK one, therefore paying off the Australian mortgage would mean you are being charged less interest overall, but you would have to weigh this up against bringing the money over at a rubbish exchange rate.

To be honest, I think it is a toss up and neither option is particularly compelling nor would either be a particular mistake.

Alan Collett

The mortgage interest on the property in which you live is probably not tax deductible - unless you work from home, and even then the interest would not be wholly deductible.

By contrast the interest on your investment property is probably wholly tax deductible.

Therefore, look at the rate of interest you are paying after factoring in the tax deductibility of the UK property mortgage.

Consider also the ability to re-draw on the sum paid down if needs arise - likely to be easier on an Aus mortgage than a UK mortgage when you are living in Australia.

And ... the general direction of interest rates in the two countries - I'm guessing that interest on UK mortgages isn't going to go up to any meaningful extent any time soon, while mortgage rates may well ease in Australia as the economy slows.

Not an easy decision!

Best regards.