Understanding tax on UK rental

[Michael986]

Hi all,

 

I've been browsing these forums in preparation for my move to Australia, but have joined up now I'm here.

 

I’ve been looking into how I should deal with income from a rental property in the UK, with regard to the tax that needs to be paid.

 

I’ve recently moved to Australia on a 457 visa, and before doing so I applied to have my rental income paid to me untaxed (the NRL1 form) which was accepted.

 

So, £800 is paid into my UK bank account monthly, untaxed. For the sake of simplicity, let’s assume that my monthly mortgage interest / agent fees etc on the property come to £400, so I have a

taxable income of £400 per month.

 

My understanding is that I am now a ‘Resident of Australia for tax purposes’ but as I have a UK passport, I still qualify for a ‘Personal Allowance’ of £10,000 (for the 2014/15 tax

year).

 

I’ve read through the UK and Australian Taxation rules for this, but there seems to be a lot of ambiguity and even conflicting statements.

 

I have a few questions which hopefully people who’ve been through this before will be able to assist with.

 

1. Do I have to fill in a UK tax return?

 

The HMRC's 'Filing a tax return if you live or work outside the UK' webpage - www.hmrc.gov.uk/international/tax-return.htm - states that, for Non-Resident landlords

“You will need to complete a tax return if: the annual rent you have received is higher than your 'Personal Allowance' (this is the amount of UK income you can receive tax free)”

 

As both the amount I receive annually from rent (12 * £800 = £9600) and the net income (12 * £400 = £4800) are below the threshold, the above suggests that I don’t need to, but most other discussions on the subject I’ve seen say that I do.

 

2. Do I have to declare the income in Australia when it comes to tax time? And if so, how do I make sure that I don’t pay tax on it (ie how do they know that I've used my UK personal allowance to cover it).

 

3. I’m working in Australia and therefore receive a Personal Allowance for tax here. So by using the UK PA to cover my rental income, I’m effectively getting 2 lots of PA. Is this correct / legit?

 

4. Would the type of visa that I’m on make a difference? Ie, would the answers to the questions change if I became a Permanent Resident?

 

Sorry for the first post with so many questions, but I’m getting very confused by this, and would like to get it right!

 

Cheers

 

Michael

[Guest guest90395]

I can answer questions 2 and 4 as we just asked the tax advisor doing our tax return - on a 457 visa you do not need to declare overseas income but if you get PR you would need to.

[Pumpkin]

So based on what you have put up yourself, no it looks like HMRC don't care about you doing a tax return as you are below personal allowance.

 

You do not need to disclose it in Australia because of your visa type. So as a 457 visa holder, this a good scenario for you.

 

If things change and you become a permanent resident in Australia, then you do start to declare it on your Australia tax return. I am afraid there is no way to say it is "covered by the UK personal allowance". At that point, if you don't pay tax in UK because of the personal allowance, then you definitely will in Australia.

[Gbye grey sky]

I understand that the UK Government are considering removing the personal allowance for non-residents. May not happen but watch out for it.

[KirkyG]

Hi

 

I am just having the same issue for my wife. We have been here three years and we have a shared, mortgaged property in the UK, and although I have always completed a tax return (because my situation is more complicated pensions/salaries etc) hers is pretty straight forwards. The only income she receives is on this property and she is below the threshold even without the allowable deductions. So until this year I would have agreed with both Pumpkin and Michael986 using the advice given here (http://www.hmrc.gov.uk/international/tax-return.htm)

 

But however a few days ago I stumbled across this wizard (https://www.gov.uk/check-if-you-need-a-tax-return)

 

and answering question 7 (You have lived or worked abroad check your residency status) it seems to imply that my wife (by virtue of simply living abroad) would need to complete a tax return, despite her total income being less than £10,000 and an income after allowances being less than £2,500. Therefore owing nothing and being owed nothing.

 

Can this be right? It implies that everyone who lives abroad HAS to complete a Tax Return. That can't be right, surely?

[KirkyG]

Hi

 

I am just having the same issue for my wife. We have been here three years and we have a shared, mortgaged property in the UK, and although I have always completed a tax return (because my situation is more complicated pensions/salaries etc) hers is pretty straight forwards. The only income she receives is on this property and she is below the threshold even without the allowable deductions. So until this year I would have agreed with both Pumpkin and Michael986 using the advice given here (http://www.hmrc.gov.uk/international/tax-return.htm)

 

But however a few days ago I stumbled across this wizard (https://www.gov.uk/check-if-you-need-a-tax-return)

 

and answering question 7 (You have lived or worked abroad check your residency status) it seems to imply that my wife (by virtue of simply living abroad) would need to complete a tax return, despite her total income being less than £10,000 and an income after allowances being less than £2,500. Therefore owing nothing and being owed nothing.

 

Can this be right? It implies that everyone who lives abroad HAS to complete a Tax Return. That can't be right, surely?

 

Hi Just bumping this to see if anyone can advise?

 

Any help would be greatly appreciated.....

[Gbye grey sky]

Hi Just bumping this to see if anyone can advise?

 

Any help would be greatly appreciated.....

 

How do you get to question 7? A lot relies on answers to the earlier questions how soon it tells you that a return is needed. I am assuming that HMRC now want anyone overseas with any income in the UK to declare it even if it is below the PA. This is because, as I said earlier in the thread, there are moves afoot to take the PA away from non-residents in the future. No doubt HMRC need to calculate how much extra Revenue will be generated by such a change and this will help inform policy.

[KirkyG]

How do you get to question 7?

 

I get to question 7 by selecting 'Other to the first question' and 'No' to everything else.

[Gbye grey sky]

I see what you mean. Even if your wife had zero income in the UK it implies that a UK tax return is needed.

 

I can't follow the logic there. Follow that to its conclusion and HMRC would need a tax return from everyone in the world outside the UK as it doesn't differentiate citizenship on the questions either.

[KirkyG]

I see what you mean. Even if your wife had zero income in the UK it implies that a UK tax return is needed.

 

I can't follow the logic there. Follow that to its conclusion and HMRC would need a tax return from everyone in the world outside the UK as it doesn't differentiate citizenship on the questions either.

 

Agreed, Looks like a call to the HMRC...... Grrrr.....

[Gbye grey sky]

Send them a screenshot if they can provide you with an email address. I fear you will just get someone saying that if the website is telling you that a self assessment tax return is needed then you must do one. Best of luck and let us know if you get speak to anyone with a brain who can explain why HMRC apparently seem to want millions of nil paper returns to process.

[Slean Wolfhead]

I've just sent them a reply. Been trying to update my address for the last year and they keep on sending threatening letters to my mother (where we lived for a month 2 years ago), ignoring the request to update addresses to Oz and then sending her the penalty notices for non-payment. The issue is, i seem to have been getting letters from both Self Assessment and a different HMRC section....who don't know what they're doing. I filled in the forms when we emigrated, the P80. Maybe that's upset the system, who knows?

Finally got the details updated after i sent the huge list of previous correspondence with a threat to report them for harassment unless they updated the address details and sent it to me. Got that done, received login details in the post (!) , logged on, submitted late tax return, owed no tax, but penalty was applied....which then went to my mother in England.... I just despair.

I paid the £100 online to be rid of them, then they send another statement saying i owe them £1200. It's just laughable

The reply i sent to them was just F Off, they'll never get another penny from me. It's no wonder the system is in such a mess if this is the service standard, yet they let Vodafone off billions while their boss is getting wined and dined and taken to Wimbledon.

 

My Oz tax return was submitted in 10 minutes, both years, the Oz Government single sign-on system is light years ahead of the UK...tax, medicare, doctors visits, all in one place with employment details, health insurance, super contributions already pre-filled and ready to go.

I'll gladly use it and even ENJOY using it to keep track of my finances.

[Alan Collett]

I've just sent them a reply. Been trying to update my address for the last year and they keep on sending threatening letters to my mother (where we lived for a month 2 years ago), ignoring the request to update addresses to Oz and then sending her the penalty notices for non-payment. The issue is, i seem to have been getting letters from both Self Assessment and a different HMRC section....who don't know what they're doing. I filled in the forms when we emigrated, the P80. Maybe that's upset the system, who knows?

Finally got the details updated after i sent the huge list of previous correspondence with a threat to report them for harassment unless they updated the address details and sent it to me. Got that done, received login details in the post (!) , logged on, submitted late tax return, owed no tax, but penalty was applied....which then went to my mother in England.... I just despair.

I paid the £100 online to be rid of them, then they send another statement saying i owe them £1200. It's just laughable

The reply i sent to them was just F Off, they'll never get another penny from me. It's no wonder the system is in such a mess if this is the service standard, yet they let Vodafone off billions while their boss is getting wined and dined and taken to Wimbledon.

 

My Oz tax return was submitted in 10 minutes, both years, the Oz Government single sign-on system is light years ahead of the UK...tax, medicare, doctors visits, all in one place with employment details, health insurance, super contributions already pre-filled and ready to go.

I'll gladly use it and even ENJOY using it to keep track of my finances.

 

 

Don't ignore the unpaid penalty - best to have an exchange with HMRC and invite them to waive the penalty in view of the circumstances.

 

You write well, so you may not need professional support ... but if you do you know where we are ...

 

Best regards.