help - Renting a house out in the UK whilst being resident in Australia

[Captain Roberto]

Hello

 

We are renting our house out here in the UK when we move to Sydney in July. We have never rented out house out before wanted to get some knowledge before we choose an agent.

 

Does anyone have any tips or knowledge?

 

Things we wanted to know about:

 

 

 

• Managed property rental
  
• Tax issues (i.e. how much do we get taxed)
  

 

 

or anything else we don't already know about.

 

We are having new carpets and changing the windows that are single glazed to new double glazed units. We had a new boiler last summer, and we are redecorating throughout, so it's in a fairly optimal state when we rent it out.

 

If anyone has tips, please let us know!

 

Thanks in advance

 

much love

 

The Roberts Family.

Edited February 12, 2015 by Captain Roberto
formatting

[Marisawright]

 

We are renting our house out here in the UK when we move to Sydney in July. We have never rented out house out before wanted to get some knowledge before we choose an agent.

 

 

You will need to submit a UK tax return and also declare it on your Australian tax return (with any British tax paid, if any). There is a recent thread somewhere from someone who didn't think they needed to submit UK tax returns because they weren't making enough profit on the rental to be liable for tax - they are now facing big fines.

[Captain Roberto]

Tax returns aren't too bad. I have been self employed since 1992 - so it should be ok, especially if kept simple.

[Marisawright]

Tax returns aren't too bad. I have been self employed since 1992 - so it should be ok, especially if kept simple.

 

It's worth looking into what you can claim as expenses. In Australia, if you have an investment property you get the building and contents valued when you start renting it out, then you can claim a set amount of money each year as depreciation. I have no idea if you'd be able to claim that on an overseas property but worth looking into - and who knows what you can claim against UK tax.

[Gin100]

We've been renting out our UK house since we moved to Melbourne 6 months ago. You need to get a non-resident landlord code from HMRC. This will ensure you pay no tax on your rental income in the UK - you declare these earnings in Australia & pay the tax here instead. I'd recommend going through a reliable estate agent who can manage the property on your behalf - the last thing you want when you're getting to grips with life out here is worrying about how to vet prospective tenants and how to get things fixed that go wrong. The better state you can leave your house in the more it will be looked after and the less you'll need to do from 10,000 miles away. Keep receipts of all the work you have done to make it fit for rental and estate agent fees etc as you may be able to offset these against tax. Good luck!

[Captain Roberto]

Thanks @Gin100 - we've been doing research which says similar and we are doing exactly as you have said. Since we originally posted this we realised we needed to do some work on the house and

Somehow found a couple of grand for some new carpets and to change a few windows.

 

Also decided to repaint throughout. Busy right now with all that!

 

Thanks for the tips. [emoji106]

Edited March 3, 2015 by Captain Roberto

[le petit roi]

I recommend finding and using a good letting agent and good landlord insurance. Domestic building insurance won't cover the property if its rented out.

 

Lose the emotion of it still being 'your house'. There are no guarantees that having it in perfect condition before its rented will ensure tenants keep it in good condition.

[benj1980]

I'm so glad I found this thread. I presumed from a rental perspective if I pay tax through my return in the UK that I wouldn't need to declare anything in Oz. No money would be transferred to Oz so is this not the case?

 

I would have to look into how tax is applied in Oz compared to the UK (I would just about break even every month), maybe selling up would be an easier option...

[Peachy]

We are just in the process of getting ours rented out - completed the NRL1i at lunchtime! Would be keen to know how it is dealt with in Australia - correct forms etc.

We should just about break even with the renting but then leaves the option open to come back if life in Australia doesn't work out.

We hope to sell in 12 - 18 months if things are going well. Need to make sure that I also remember to do CGT declarations etc as and when...

[Gbye grey sky]

I'm so glad I found this thread. I presumed from a rental perspective if I pay tax through my return in the UK that I wouldn't need to declare anything in Oz. No money would be transferred to Oz so is this not the case?

 

I would have to look into how tax is applied in Oz compared to the UK (I would just about break even every month), maybe selling up would be an easier option...

 

If you only breaking even there will be no tax either way in all probability. Bear in mind though that only the interest element of any mortgage is deductible against rental income, not the capital element.

[Bungo]

I'm so glad I found this thread. I presumed from a rental perspective if I pay tax through my return in the UK that I wouldn't need to declare anything in Oz. No money would be transferred to Oz so is this not the case?

 

I would have to look into how tax is applied in Oz compared to the UK (I would just about break even every month), maybe selling up would be an easier option...

 

No that is not the case. You need to declare the rental income on both the UK and Australian tax returns, but if you do pay tax in the UK (and many people won't pay tax because of the personal allowance), but if you do, this also goes onto the Australian tax return as a credit against your tax bill.

 

Are you sure you only breakeven though? Noting that only interest charges and not your mortgage repayment is tax deductible. With the low interest rates in the UK, you must be charging very low rent to only be breaking even.

 

Declaring the income on your Australian return is not hard, it certainly would not be a factor if I were considering selling a house, think bigger picture.

[benj1980]

No that is not the case. You need to declare the rental income on both the UK and Australian tax returns, but if you do pay tax in the UK (and many people won't pay tax because of the personal allowance), but if you do, this also goes onto the Australian tax return as a credit against your tax bill.

 

Are you sure you only breakeven though? Noting that only interest charges and not your mortgage repayment is tax deductible. With the low interest rates in the UK, you must be charging very low rent to only be breaking even.

 

Declaring the income on your Australian return is not hard, it certainly would not be a factor if I were considering selling a house, think bigger picture.

 

By the time I pay an agent to manage and fees associated with this yes I think I'll make only a small profit. I bought near boom time and possibly charge currently a little lower than the market rate as I got a good choice of tenants.

 

I have to say I didn't even anticipate an Australian tax return, presuming that there would be a PAYE system for my wages and that would be it. How could I owe money to the Oz treasury if I've already paid my tax in the UK? Can you give me an example?

 

Still got a lot to learn!

[Gbye grey sky]

By the time I pay an agent to manage and fees associated with this yes I think I'll make only a small profit. I bought near boom time and possibly charge currently a little lower than the market rate as I got a good choice of tenants.

 

I have to say I didn't even anticipate an Australian tax return, presuming that there would be a PAYE system for my wages and that would be it. How could I owe money to the Oz treasury if I've already paid my tax in the UK? Can you give me an example?

 

Still got a lot to learn!

 

Tax returns are compulsory anyway in Australia for everyone.

[KirkyG]

You only need declare it in Oz if you have achieved PR. 457 holders do not declare outside taxable income in Australia

[Marisawright]

I have to say I didn't even anticipate an Australian tax return, presuming that there would be a PAYE system for my wages and that would be it. How could I owe money to the Oz treasury if I've already paid my tax in the UK? Can you give me an example?

 

 

There is a PAYE system in Australia but you still have to submit your own tax return every year. It's silly really, because with a little tweaking they could make it unnecessary for most people. However in your case it's important.

 

The rule is that if you're an Australian permanent resident, you pay tax on all your income including foreign income (the same applies to Brits in reverse). However you can't be taxed twice, so on your tax return, you declare any British tax you've paid and they'll take that into account.

 

Don't think that because you're not making a profit, you don't have to mention it - there is a thread somewhere from someone who did just that, got found out and now he's facing hundreds of dollars' worth of fines from the Australian Tax Office. They're not accepting ignorance as a defence!

 

Because you've got property in the UK, I'd be using a tax agent who knows both UK and Australian tax - don't go for a cheap one like H&R Block. There's one called Alan Collett somewhere on these forums who knows his stuff.

 

One thing to look into is whether you can claim depreciation, it can reduce your tax by quite a bit. You'd need to get a valuer to do an assessment and depreciation schedule NOW so you have a baseline, so find out about it asap. You can claim depreciation on an Australian property so i don't see why you couldn't do it on an overseas one.

Edited April 7, 2015 by Marisawright

[akiralx]

The rule is that if you're an Australian permanent resident, you pay tax on all your income including foreign income (the same applies to Brits in reverse). However you can't be taxed twice, so on your tax return, you declare any British tax you've paid and they'll take that into account.

 

Don't think that because you're not making a profit, you don't have to mention it - there is a thread somewhere from someone who did just that, got found out and now he's facing hundreds of dollars' worth of fines from the Australian Tax Office. They're not accepting ignorance as a defence!

 

 

Though if you haven't got PR the ATO tell you to not mention it on your return as it's not taxable here. I only entered the rental income on my return after I got PR. In the UK a friend acted as my rental agent, asked HMRC for an agent registration number but never got a response - the rent was under the personal allowance anyway.

[benj1980]

I've got PR but haven't left yet. So if I've been taxed in the UK and add this to my Australian tax return, what additional tax would they need to work out if all other income was from their PAYE system? Wouldn't I be all paid up?

 

Thanks for clarifying the other points this is really useful.

[Bungo]

I've got PR but haven't left yet. So if I've been taxed in the UK and add this to my Australian tax return, what additional tax would they need to work out if all other income was from their PAYE system? Wouldn't I be all paid up?

 

Thanks for clarifying the other points this is really useful.

 

As I mentioned in post #11, you declare the tax on the UK and Australian tax return. Tax on your rental income will clearly not have been deducted from PAYE.

 

Then if there is any tax paid in the UK, you also enter this as a *credit* on the Australian return, so it reduces the amount to be paid in Australia by whatever amount has already been paid in the UK.

[Shellybingobingo]

Fill out a nrl1 form u get approved by hmrc and no tax get taken by our agents . If you don't fill that form in it will . Then you tell them here wen u do tax return . Somert like that anyway my hubby sorts it lol but u need fill that form in I think that's what it's called .

[chall5]

only the interest element of any mortgage is deductible against rental income, not the capital element.

 

could you expand on this maybe with an example pls

[Gbye grey sky]

could you expand on this maybe with an example pls

 

If you have a repayment mortgage you make a monthly payment to the bank over a 25 or 30 year term. At the start most of the payment is interest (and it is this element that is variable depending on the prevailing interest rates). Over time the small capital payments eat away at the amount owed so that more of your monthly payment is paying off the debt rather than the interest.

 

However the tax authorities do not consider that the capital element of your monthly payment is a deductible expense (in the UK or Oz) so you can only make a deduction against income from that property for the interest element.

 

This is one reason why many buy to let mortgages were 'interest-only' mortgages. The landlord wanted to max out his tax relief.

[Bungo]

could you expand on this maybe with an example pls

 

Say you borrow £100,000 and you are charged an interest rate of 4%. It means that every year the bank is charging you £4,000 in interest, so that is being added on to what you owe. So you are £4,000 worse off per year because interest is being added to your debt.

 

Now you might make mortgage payments of say £10,000 a year, but this is not effecting your overall wealth, it is just moving from one account to another account. Suppose you had two bank accounts, one overdrawn and another in credit and you move money from one to another, you are no better or no worse off, you just have your money in different accounts, that is all paying your mortgage off is, moving money from a current account to an "overdrawn" mortgage account.

 

So your £10,000 of mortgage payments does not change your wealth and is therefore not tax deductable. But the £4,000 interest that is being added to your debt is a change in your wealth, you are worse off by £4,000, and so this can go on your tax return.

[Captain Roberto]

thanks all. helpful

[Marisawright]

I've got PR but haven't left yet. So if I've been taxed in the UK and add this to my Australian tax return, what additional tax would they need to work out if all other income was from their PAYE system? Wouldn't I be all paid up?

 

 

You're not liable for any Australian tax until you land in Australia, so any income or expenses before that date don't need to be declared on your Aussie tax return (even though it's in the same tax year).

 

You complete your tax return after the end of the tax year (30th June) On it, you'll need to declare the income you receive from rental from the date you arrive, and you can also claim your expenses from that date (i.e. agent's fees, interest on the mortgage, depreciation, minor repairs etc). You will pay tax on the difference, if any. Note that you can't claim your full mortgage payments as an expense, only the interest component (so you may have to ask your bank what the split is).

 

As for other income - you're right, most of it is already covered by the PAYE system. At the end of the tax year, you get a Group Certificate which tells you how much your total income was and how much tax you paid. You enter that on your tax return. Then you claim any additional expenses you may have, e.g. you might have an Income Protection policy, or you might have some work-related educational expenses. You also need to declare bank interest and profits from shares - banks do not deduct tax here.

Edited April 8, 2015 by Marisawright

[Marisawright]

Say you borrow £100,000 and you are charged an interest rate of 4%. It means that every year the bank is charging you £4,000 in interest, so that is being added on to what you owe. So you are £4,000 worse off per year because interest is being added to your debt.

 

 

So your £10,000 of mortgage payments does not change your wealth and is therefore not tax deductable. But the £4,000 interest that is being added to your debt is a change in your wealth, you are worse off by £4,000, and so this can go on your tax return.

 

However it should be pointed out that even if your mortgage says it's charging 4%, that doesn't mean you can just calculate 4% of your payments. Over the life of the loan, the bank varies how much of the repayment is paying interest and how much is paying the debt. In the early years, you're paying a lot of interest and hardly any principal. So you may need to ask them what the split is, to know what you can claim.