Buy to let, Capital Gains and a big headache!!! Help!!!!

[Lucy Furness]

Hey all...
Here's my problem...
We have sold our house (should sign contracts next week) and thought it would be a grand idea to buy another home here outright so no mortgage, and get a rental income.
We've not got PR in Oz and are on a state sponsored so after 2 years we can apply for PR.
I wasn't really aware of all the taxes we'd end up paying and have suddenly realised we'll be liable for capital gains tax, and other taxes.

We intended on moving straight to Oz once the house went through and renting the UK house straight out. Now I look at it and am wondering if we should move into the new house for a short period of time before renting it out to avoid hefty CGT bills???
I'm so so so confused. Not sure how long we'd have to live in the new house though before renting it out?
It would now be deemed as a buy to let, so tax big time! What tax would we pay in Oz too?

I feel like we've made a huge mistake and will be out of pocket.

Anyone got any suggestions? Frankly I'm ready to pull out of the purchase today and find other ways to invest our life savings!

Cheers in advance for any answers in laymans terms as I'm not feeling too clever right now!

[ghost]

Firstly Speak to an Accountant.

I you have sold your home in the UK, you wont be liable for capital gains tax.
If you buy a rental home, you wont be liable for capital gains tax until you sell it, providing you make a gain. IE the value goes up, so in terms of cash it will cost you nothing, you will pay tax on the profit.
You will pay tax on the rental income, bearing in mind you wont be earning money in the UK, if the property is in yours and I assume husbands name, you can split the income tax bill between yourselves, Im guessing unless your buying buckingham palace, you may not pay hardly any tax at all.

[Alan Collett]

Hello Lucy.

Where is the prospective rental property - in the UK, or in Australia?

And what visa subclass do you have - a 475?

Best regards.

[northshorepom]

I wouldn't worry about it too much. CGT is only payable on any capital gains and in the current market (and let's face it, for the foreseeable short-medium term future) that's not really an issue. The clue's in the name, you only pay a portion of the actual gain in capital, people somehow get the idea they're liable for a proportion of the selling price but it's not the case. Then if you are liable, there are lots of tunes you can play on the rules - you get an annual tax free CGT allowance for a start (but this varies if you're abroad, needs checking) and there is "taper relief" which deducts from the notional capital gain an allowance for general inflation, even if you can't qualify for the PPR (Principal Private Residence) exemption because you're letting it out. For someone with one modest property you're very unlikely to be liable for anything - the tax only really catches those with property portfolios, which is fine because that's what it's supposed to do

Basically it's unlikely to bother you unless the market is rising quite strongly, and you hold on to the property for a substantial number of years so the capital gain outweighs the fees and other costs involved. The first just isn't the case at the moment, and are you really going to hold on to it for 10 years or more? It doesn't sound like it

On another subject, it's more tax efficient to take out some mortgage rather than pay for cash - mortgage interest payments are deductible from the rent in calculating the profit you are making from the rental, so you can reduce your income tax liability on the rental income quite substantially. It depends on what else you do with the capital instead of course, at current rubbish UK interest rates and the poor GBP:A$ exchange rate it might still be the best thing to do (because you won't earn much on any deposits in the UK and you will "lose" a lot in the conversion if you bring the funds over here)

[Rupert]

Hey all...
Here's my problem...
We have sold our house (should sign contracts next week) and thought it would be a grand idea to buy another home here outright so no mortgage, and get a rental income.
We've not got PR in Oz and are on a state sponsored so after 2 years we can apply for PR.
I wasn't really aware of all the taxes we'd end up paying and have suddenly realised we'll be liable for capital gains tax, and other taxes.

We intended on moving straight to Oz once the house went through and renting the UK house straight out. Now I look at it and am wondering if we should move into the new house for a short period of time before renting it out to avoid hefty CGT bills???
I'm so so so confused. Not sure how long we'd have to live in the new house though before renting it out?
It would now be deemed as a buy to let, so tax big time! What tax would we pay in Oz too?

I feel like we've made a huge mistake and will be out of pocket.

Anyone got any suggestions? Frankly I'm ready to pull out of the purchase today and find other ways to invest our life savings!

Cheers in advance for any answers in laymans terms as I'm not feeling too clever right now!

Your post is a bit hard to follow and I am not sure of all the facts, e.g. where is house, is it or will it be your only house etc etc.

However the thing to remember, even if you are liable to CGT, is that it is a tax on *profit* so you cannot be out of pocket. Likewise the income tax you will pay whilst renting it out is a tax on your surplus income over expenses, so again you are not out of pocket.

That is like saying yo uare out of pocke if you get a payrise because you pay more tax as a result.

[Tarby777]

Don't be too sure of not paying CGT to HMRC on the sale of a UK property if you're in Australia. My understanding (and this came from a phone call to HMRC a couple of weeks ago) is that you won't be liable if:

1) You sell within 3 years of leaving the UK, or
2) You eventually rack up 5 years as an Australian resident

You sometimes hear folks say that renting the property in the period after you moved out and before you sold is also a factor in determining liability for CGT when you eventually sell, but HMRC said "not so".

As for the rental income, the tax-free allowance in Australia went up from $6000 to $18200 last week (http://www.ato.gov.au/individuals/co...t/00322113.htm), so if one of you won't be working, you could do worse than to get the property in that person's name...

HTH
Tarby

[northshorepom]

Don't be too sure of not paying CGT to HMRC on the sale of a UK property if you're in Australia. My understanding (and this came from a phone call to HMRC a couple of weeks ago) is that you won't be liable if:

1) You sell within 3 years of leaving the UK, or
2) You eventually rack up 5 years as an Australian resident

You sometimes hear folks say that renting the property in the period after you moved out and before you sold is also a factor in determining liability for CGT when you eventually sell, but HMRC said "not so".

As for the rental income, the tax-free allowance in Australia went up from $6000 to $18200 last week (http://www.ato.gov.au/individuals/co...t/00322113.htm), so if one of you won't be working, you could do worse than to get the property in that person's name...

HTH
Tarby

It still has to actually make a capital gain in excess of inflation (that's your taper relief), annual CGT allowance and any other allowance, for you to be liable for any tax at all. And you have to say that for the foreseeable future that's very unlikely

[newjez]

I couldn't understand the post. Could you spell it out in a tabular format maybe?

No -one should be paying CGT on a UK property unless they have rented it out for longer than about 6 years.

Oz properties haven't moved up in about the last three.

You can't just move into a house and avoid CGT - but there is a rule which says if you have lived in it for a period of time - then you can avoid it. (In the UK - not sure if that applies in Oz)

You not confusing CGT with stamp duty are you?

[Alan Collett]

It still has to actually make a capital gain in excess of inflation (that's your taper relief), annual CGT allowance and any other allowance, for you to be liable for any tax at all. And you have to say that for the foreseeable future that's very unlikely

There is no UK CGT at issue if you dispose of an investment in a UK tax year when you are not resident (or ordinarily resident) at any time, so long as you do not resume residence (or ordinary residence) within 5 complete tax years of departure from the UK.

Commentary on taper reliefs, etc are therefore immaterial to the generality of individuals who migrate to Australia - so long as the disposal is suitably timed.

The issue is therefore likely to be more one of Australian CGT.

However, the generality of temporary visaholders are only subject to Aus CGT on Aus source capital gains.

Best regards.

Best regards.

[Alan Collett]

PS UK rental income is also not assessable in Australia if one is resident in Australia as the holder of most temporary residency visas (eg a subclass 475). This changes though once permanent residency visas are granted.