Getting taxed 2k on my UK property in Australia :(

Hi All

 

I'll do my best to describe my situation. For the last tax year i got taxed 2k, which was mostly because of my UK property. At least from my understanding

 

I have been in Oz for 5-6 years. In August 2015, i finally got my PR

 

- I work full-time

- I have a small ebay business

- I also have a 1 bed flat in the UK, that i own and rent out.

 

I declare my property (tax wise) with the HMRC. My property makes a profit. Therefore i get taxed from the UK on my profit.

 

When i did my 2015/16 tax return in Oz this year (with an accountant). Despite paying UK tax, I had to pay Oz tax on it too!

My ebay business officially made a loss. My income from my job was also taken into account. But as mentioned the accountant said the bulk of the 2k was because of the property

 

My understanding is that i made X in rent as an income. But the interest on my outstanding mortgage is minimal. Therefore i have the difference to pay tax on, which is a large sum.

This hits me twice fianically (in the UK and in OZ). Or at least it did via this accountant...

 

So my question is

A) - Is this right?

B) - Can i do anything tax-wise to improve things?

C) - Is a better option to sell up?

D) - If i do sell, how can i bring the cash over to oz without getting taxed?

 

I hope this explains things.

 

Thanks in advance for any tips

You have posted in the Ask Vista section, this is for financial advise. Financial advice covers things like savings, investments, borrowings. Financial advice is not the same as tax advice, you need an accountant for tax advice.

 

To your questions. Well it is unusual but certainly not impossible that you made sufficient profit in a one bedroom flat in UK to attract tax. The personal allowance is available and for many people living overseas this would cover rental profits and mean zero liability to HMRC. Nevertheless, as you have paid UK tax then when you declare the rental profits on the Australian tax return you should also declare the UK tax paid on your Australian tax return and the $ tax bill is adjusted to reflect that. I am surprised that your accountant did not do that, are you sure they didn't? Perhaps you just missed it as it would be in separate parts of the return.

 

Should you sell? That made me smile. You ask should you sell your profit making "business" (the rental business) but you did not ask if you should shut down the loss making eBay business. Profit is good. Paying tax is good because it means you have made a profit! It means you are wealthier this year than you were last year. The logic of selling the house because it is turning a profit for you is as flawed as asking your employer to pay you less because you are trying to cut your tax bill.

Moved to Money and Finance

you need an accountant for tax advice.

Totally - i'm struggling to find one in Australia that is also an expert in UK property considerations. Which probably could sort all of this out...

 

Well it is unusual but certainly not impossible that you made sufficient profit in a one bedroom flat in UK to attract tax

A tax return for the UK property for UK tax is required no matter how much or little you are making or losing financially. So when you profit, you attract tax.

 

Perhaps you just missed it as it would be in separate parts of the return.

No, i didnt. They told me in person face to face!

 

Should you sell? That made me smile.

I dont understand why you've said this. I do understand that paying tax means you must be making a profit! But, i dont fancy pay 2k+ in tax each each on that profit...

So maybe selling might just be an easier solution! This may have other complications

 

Moved to Money and Finance

Thankyou. Apologies for posting in the wrong area

Totally - i'm struggling to find one in Australia that is also an expert in UK property considerations. Which probably could sort all of this out...

 

 

A tax return for the UK property for UK tax is required no matter how much or little you are making or losing financially. So when you profit, you attract tax.

 

 

No, i didnt. They told me in person face to face!

 

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[/color]I dont understand why you've said this. I do understand that paying tax means you must be making a profit! But, i dont fancy pay 2k+ in tax each each on that profit...

So maybe selling might just be an easier solution! This may have other complications

 

 

It doesn't need an expert in Australian and UK tax, this is pretty basic tax stuff and most accountants will be familiar with dealing with a little bit of overseas sourced income.

 

I did not say that UK profit does not attract tax, I was pointing out that there is a UK personal allowance and for many people living overseas, their UK rental profits will fall within the UK personal allowance and accordingly there won't be any UK tax at all. Your UK tax bill will have been reduced because of personal allowance.

 

You have also misunderstood my point on the tax credit. I was suggesting you check whether it had bee included on the tax return because you mentioned you had been taxed twice. Well if the tax credit is on the Australia tax return you have not been taxed twice, as the UK tax has been credited back to you. I am not suggesting that the tax credit would be big enough to wipe out the Australian liability, so that your accountant has told you that your tax bill is due to the rental income seems perfectly reasonable to me. You should expect that, you should just make sure it is not bigger than it needs to be. I would specifically ask your accountant "have you included my UK tax credit?"

 

If you find that making a profit of (say) $5k and paying $2k tax (so being, say, $3k up for the year) is less desirable than making $0, the by all means sell. Ask your employer for a paycut whilst you are at it, will also bring down that tax bill.

:wink:

I would advise getting a depreciation report, my husband and I went from owing $4.5k to $300 after providing depreciation reports for our two UK properties.

 

Our accountant also advised us we had completed our UK returns incorrectly and that we should not be paying an UK tax as we would be eligible to use our personal tax allowance. On this basis we received refunds from HMRC for this and last year!

I would advise getting a depreciation report, my husband and I went from owing $4.5k to $300 after providing depreciation reports for our two UK properties.

 

Our accountant also advised us we had completed our UK returns incorrectly and that we should not be paying an UK tax as we would be eligible to use our personal tax allowance. On this basis we received refunds from HMRC for this and last year!

I didn't think you could get a tax free allowance if you were non resident, but hopefully someone can clarify?

It doesn't need an expert in Australian and UK tax, this is pretty basic tax stuff and most accountants will be familiar with dealing with a little bit of overseas sourced income.

 

You have also misunderstood my point on the tax credit.

 

If you find that making a profit of (say) $5k and paying $2k tax (so being, say, $3k up for the year) is less desirable than making $0, the by all means sell. Ask your employer for a paycut whilst you are at it, will also bring down that tax bill.

:wink:

 

Then all the accountants i've found thus far havent been confident with the situation. So i guess i'll keep looking for another. Ideally i'd like to find someone who is experienced in this side of things.

 

Yes i think alot between us is being misunderstood, both ways....

 

Thanks for the tip...

Its not as straightforward as wanting to make a profit or not. Theres a fair few other factors involved (needing a lump sum for a property in Oz, being tired of renting out and the hassles that come with it), to name a couple.

We have property in the UK and we have used GM Tax to do both our UK and Aus tax returns - give them a call

Have you declared yourself non resident in the UK?

We have property in the UK and we have used GM Tax to do both our UK and Aus tax returns - give them a call

Have you declared yourself non resident in the UK?

 

No i cant say i have!

I presume you ask as this will help?

 

Also - great stuff about GM tax! Looks ideal!!

Pretty much standard work for any accountant worth his salt, I'd have thought. We maintain a few properties abroad, which in recent years have been turning a profit after years of being to write off loses. It must be declared to ATO as does bank accounts for that matter. Very much a matter of control over where about' s of money. Also for pension considerations if required I expect. It does put up the tax bill accordingly but rather risky not to declare anything with the exchange of information from overseas banks to ATO from customers who are overseas resident. If you sell you will surely be liable for tax on that.

 

Our accountant is rather good I suppose. He went through a pile on info on outgoings etc, all not in English, apart from some necessary translations done by self. But the procedure is rather standard. Good book keeping a requirement.

 

Find yourself an accountant that doesn't shy away from such work. It really isn't difficult. I can't think beyond laziness why some prefer not to take it on.

No i cant say i have!

I presume you ask as this will help?

 

Also - great stuff about GM tax! Looks ideal!!

you also shouldn't be paying tax in two countries on the same income so hopefully they will sort it out. Selling a home overseas is as much as a pain as letting one, albeit for a shorter period of pain.

I didn't think you could get a tax free allowance if you were non resident, but hopefully someone can clarify?

 

My understanding is that a UK resident (as in born here) has an increase to their personal allowance (PA) if they are classed as non resident to 11k from the usual 8k. If you are a director then dividends are taxed at 0% for the first 5k then 7.5% kicks in, making a healthy tax saving.

 

However they give on one hand and take on the other....For a resident born in a Commonwealth country and returning back the UK personal allowance drops to zero! The PA was dropped several years ago.

 

Thats my understanding from my accountant but dont take this as a given! Its a learning curve for both of us as I have just moved to Oz and there are plenty of challenges ahead if you still have UK income (which I do).

Ok, Bungo's advice above is correct. The principles are as follows:

 

You are tax resident in Australia so you must declare your worldwide income (including rental income from the UK)

You also declare any tax compliant expenses in earning that income (Mortgage interest, rental fees, repairs, depreciation etc, I think you are even allowed the cost of 1 trip pa to inspect your property)

Australia and the UK have a double taxation agreement so you should/will not be paying tax twice, ie you get a tax credit in Australia for any tax paid in the UK. If the tax paid in the UK is greater than the Australian liability you will actually receive a refund.

 

Try an example with simple numbers(made up):

Rental income $30k

Rental expenses $10k

Net Rental Profit $20k

UK tax liability $4k (Paid) (credit to Aus)

Australian tax liability $6k

Net Australian tax to be paid $2k ($6k less credit of $4k)

 

It's pretty simple, hope this helps. Make sure that your return includes all rental expenses and a credit for your UK tax paid.

 

Again, paying tax means that you are making money which is a good thing, I'd be happy to pay $1m pa in tax as it means I'd be making a lot of money.