Do I Declare UK Rental Income On Both HMRC and ATO Tax Returns?

[tloring]

My wife and I (plus our 2 kids) have been in Oz for almost two years. Wife is Australian and I am on permanent spouse visa. Been through first full tax year last year (2011/2012). UK and Australian tax returns last year were a nightmare given leaving UK employment, cashing in UK investments, capital gains, start of Australian income etc. etc. This tax year (2012/2013) is going to be a lot more simple, however, we want to know whether you have to declare UK rental property income on both UK and Australian tax returns?

 

We have two rental properties in UK with income, we have a couple of bank accounts mainly to service the rental properties. That's it in the UK now, nothing else. We have just received UK 2012/2013 tax return forms and before we started completing them we realised that we didn't know whether we have to declare UK rental income on both UK and Australian tax returns or just on one, and if so which one?

 

If we declare rental income on both tax returns will the Double Taxation Agreement between UK and Australia recognise this? Our worry is there will be nothing else on the tax return that might trigger the Double Taxation Agreement calculations, i.e. no UK employment income or other UK investment income.

 

Is there anyone out there in the same situation who can advise on the above. Many thanks in advance.

[Alan Collett]

If HM Revenue issues a Notice to File a Tax Return you must lodge it by the due date or face late filing penalties.

 

The challenge is therefore to persuade HMRC to take you out of the Self Assessment regime.

 

Remember that as a UK citizen you continue to be entitled to the UK personal allowance, even as a non-UK resident individual. This may well mean you have no liability to UK income tax for 2012/13.

 

Your UK net rental income (after deducting allowable expenses) is also assessable in Australia given your Australian tax residency and visa status.

 

In case of need: http://www.gmtax.com.au/individuals/

 

Best regards.

[tloring]

Thanks Alan,

I will get going on my UK tax return including rental income. Not sure how I extract myself from the HRMC self-assessment list?

Also I don't know how the UK HRMC and ATO know that I have submitted my rental income on both returns. I know there is a double taxation agreement but is there not a risk that I just get taxed on the rental income twice if the double taxation agreement calculation doesn't get triggered for me. I suppose what I don't understand is how does each tax office know about me and how do they communicate so I don't get taxed twice?

Regards,

[Notts]

I suppose what I don't understand is how does each tax office know about me and how do they communicate so I don't get taxed twice?

Regards,

 

They don't have to communicate. You declare it on your UK return and calculate your tax due (if any). Then when you complete your Aus return you enter the income under foreign income and enter the tax you have paid in the UK in the relevant box as a tax credit, reducing your Aus tax bill by the same amount.

[tloring]

Thanks Notts. I have always completed by my own UK tax returns but here is Australia I engaged an accountant to complete our first years ones. I will probably use an accountant again for Australian tax year 2012/2013 and I will inform them of what we declared on the UK tax return and let them tell me what tax credit amount we should put on our Australian tax returns.

Thanks for the information.

[Peach]

The challenge is therefore to persuade HMRC to take you out of the Self Assessment regime..

 

Does GMTax do this on your behalf? How and when? (as my second UK return will shortly be prepared by your company). Thanks.

[hawthorne]

Hi Alan

 

Regarding your answer above about personal allowances, does this mean that rental income (after expenses) on a UK house that is below the UK personal allowance threshold is not liable to UK income tax but is still liable for taxation in Australia?

 

And if the house is owned 50/50 between spouses, can they apportion the income 50/50 for the purposes of Australian tax?

 

Thanks

 

Hawthorne

[Rupert]

Hi Alan

 

Regarding your answer above about personal allowances, does this mean that rental income (after expenses) on a UK house that is below the UK personal allowance threshold is not liable to UK income tax but is still liable for taxation in Australia?

 

And if the house is owned 50/50 between spouses, can they apportion the income 50/50 for the purposes of Australian tax?

 

Thanks

 

Hawthorne

 

The UK taxman has first bite of the cherry so to speak on the UK sourced rental income. If you pay tax in the UK then you would get a tax credit on the Australian return so effectively do not pay (as much or any) tax in Australia. But yes, if it is below the UK personal allowance, then there is no tax credit for the Australian return and you will end up paying tax on the full amount.

 

It is not only possible to apportion income between the co-owners of the property, it is absolutely essential.

[hawthorne]

Hi

 

Many thanks for the reply, Rupert - I think this will be our situation... we pay very low interest on our mortgage so most of the rent we get will not be deductible - I'll be in the higher bracket in Australia but spouse will probably study and the house has always been in both names so this will help a bit.

 

We haven't found anyone who will remortgage for expats - got a call from mortgage broker on Friday who said there was no-one who would lend...

 

Thanks again

 

Hawthorne

[Rupert]

Hi

 

Many thanks for the reply, Rupert - I think this will be our situation... we pay very low interest on our mortgage so most of the rent we get will not be deductible - I'll be in the higher bracket in Australia but spouse will probably study and the house has always been in both names so this will help a bit.

 

We haven't found anyone who will remortgage for expats - got a call from mortgage broker on Friday who said there was no-one who would lend...

 

Thanks again

 

Hawthorne

 

 

Why would you remortgage when you have a very low interest rate? I am like you, I have a low interest rate, so I was determined to keep it.

[Guest scrumpy]

Ive been told to make sure our house is in both names and then we can use both personal tax allowances up here in the UK, and we do need to declare the income when we are in Oz,

Also we/you need to do an "Overseas Landlord form" I think its called N11? but sure some one will correct if wrong

Tis all getting complicated!

[wolvesaussie]

Can anyone tell me if my approach is right? As a normal person, I dont do a tax return in the UK, now I have moved back to Australia the UK will no nothing about it. I was just going to add the income to my Australian return... If this ok? or do I have to go to the trouble of registering for self assesement to give the UK "first bite" of the rental income if any?

[Alan Collett]

Ive been told to make sure our house is in both names and then we can use both personal tax allowances up here in the UK, and we do need to declare the income when we are in Oz,

Also we/you need to do an "Overseas Landlord form" I think its called N11? but sure some one will correct if wrong

Tis all getting complicated!

 

 

You should register under the Non Resident Landlord scheme.

 

HMRC form NRL1 refers: http://www.hmrc.gov.uk/international/nr-landlords.htm#2

 

Best regards.

[Alan Collett]

Can anyone tell me if my approach is right? As a normal person, I dont do a tax return in the UK, now I have moved back to Australia the UK will no nothing about it. I was just going to add the income to my Australian return... If this ok? or do I have to go to the trouble of registering for self assesement to give the UK "first bite" of the rental income if any?

 

You should register under the Non Resident Landlord scheme (see my posting above this one), otherwise your managing agent (or your tenant in the absence of a managing agent) is required to withhold basic rate tax from the net rentals collected on your behalf, and to remit this to HM Revenue.

 

As a result of entering into the NRL scheme you will probably find that HMRC opens a Self Assessment file, and requires you to complete a UK self assessment tax return.

 

It is possible to then have your SA file closed if your net rental income is less than your personal allowance, but you may have to lodge at least one UK tax return before HM Revenue agrees to close the file.

 

Note also the requirements to register for UK self assessment: http://www.hmrc.gov.uk/sa/need-tax-return.htm#1

(see the paragraph on income from savings, investment, or property)

 

Best regards.

[wolvesaussie]

Ha ha, thats a joke isnt it, I can really imagine my students holding back rent and giving it to the Tax Man..

[Alan Collett]

Ha ha, thats a joke isnt it, I can really imagine my students holding back rent and giving it to the Tax Man..

 

No joke. It's the law.

 

Suggest you enrol in the NRL scheme, and the issue goes away ...

 

Best regards.

[runslikeafish]

Alan, how do you go about getting your UK SA file closed, just call the self assessment hotline?

 

Thanks very much for your help by the way - so many extremely useful forum posts!

[wolvesaussie]

Thanks for your assistance, I have had a look, I think that I dont have to do it because I have no agent and the students only pay £40 a week each? Is that right? It sounds like a crazy idea, making students responisible for collecting and managing tax, they cant even manage themselves .

 

Was the other poster correct in that you could use your tax free allowance and then not declare in the Australia? I thought that if you didnt pay tax on it in the UK (for whatever reason) then you still had to declare it and pay tax on it in Australia

[Rupert]

Thanks for your assistance, I have had a look, I think that I dont have to do it because I have no agent and the students only pay £40 a week each? Is that right? It sounds like a crazy idea, making students responisible for collecting and managing tax, they cant even manage themselves .

 

Was the other poster correct in that you could use your tax free allowance and then not declare in the Australia? I thought that if you didnt pay tax on it in the UK (for whatever reason) then you still had to declare it and pay tax on it in Australia

 

UK rental income needs to be declared on both tax returns. If any tax is paid in the UK then this is also declared on the Australian return as a tax credit. No it is not correct that you can use UK tax allowance to justify not declaring it in Australia. Nor can you pick and chose where to pat tax or who gets first bite of the cherry based on what is more convenient.

[Alan Collett]

Alan, how do you go about getting your UK SA file closed, just call the self assessment hotline?

 

Thanks very much for your help by the way - so many extremely useful forum posts!

 

 

Thanks for the kind words! :biggrin:

 

We have a relatively standard letter which we send to the tax office handling our client's tax returns, and which seems to achieve the desired end.

 

Best regards.

[Alan Collett]

Thanks for your assistance, I have had a look, I think that I dont have to do it because I have no agent and the students only pay £40 a week each? Is that right? It sounds like a crazy idea, making students responisible for collecting and managing tax, they cant even manage themselves .

 

Was the other poster correct in that you could use your tax free allowance and then not declare in the Australia? I thought that if you didnt pay tax on it in the UK (for whatever reason) then you still had to declare it and pay tax on it in Australia

 

http://www.hmrc.gov.uk/cnr/tenants_guide_to_the_nrl_scheme.pdf

 

See point 1 on page 2.

 

Best regards.

[Jockeylad]

Thanks for the kind words! :biggrin:

 

We have a relatively standard letter which we send to the tax office handling our client's tax returns, and which seems to achieve the desired end.

 

Best regards.

 

Hi Alan

 

My wife and I are also renting our UK property out and if I understand you correctly then;

 

1. We can split the rental income between us, thus reducing the probability of it surpassing our UK tax allowance.

2. Apart from filling out the agents FICO form, we must also register on the non resident landlord scheme.

3. We must register for UK tax self assessment (possibly triggered automatically?).

4. We must also declare the income on our Australian tax return.

5. Once the UK HM Revenue are satisfied that no tax is payable and after at least 1 tax return, we can apply to have our self assessment file closed.

 

Again great info and I'm hoping I've understood it all correctly :notworthy:. You mention that you send a standard letter to HM revenue, on behalf of your clients, to have them removed from the self assessment list. Is this letter freely available :unsure:?

[Alan Collett]

Hi Alan

 

My wife and I are also renting our UK property out and if I understand you correctly then;

 

1. We can split the rental income between us, thus reducing the probability of it surpassing our UK tax allowance.

2. Apart from filling out the agents FICO form, we must also register on the non resident landlord scheme.

3. We must register for UK tax self assessment (possibly triggered automatically?).

4. We must also declare the income on our Australian tax return.

5. Once the UK HM Revenue are satisfied that no tax is payable and after at least 1 tax return, we can apply to have our self assessment file closed.

 

Again great info and I'm hoping I've understood it all correctly :notworthy:. You mention that you send a standard letter to HM revenue, on behalf of your clients, to have them removed from the self assessment list. Is this letter freely available :unsure:?

 

 

Hello again jockeylad.

 

Just a brief reply as I'm presently in transit in the UAE en route to the UK.

 

We'll be delighted to help formally if you need some assistance with your tax returns - please feel able to telephone us and to ask for Jane Cooper or Chrissy Redwood:

http://www.gmtax.com.au/contact/

 

Jane or Chrissy can discuss your situation with you, how we might help, and our fees (which are fixed in amount, and are agreed up front before you instruct us).

 

The letter to which you refer isn't freely available - our clients pay us to look after this sort of thing!

 

Best regards.

[ItchyFeet76]

Hi there,

 

I've been reading this thread with interest (and a little anxiety, too, if I'm perfectly honest). I've never filed a tax return in my life but if we move to Oz we'll be renting out our UK house (as it'll only be a temporary move). I understand the UK side (both doing tax returns, offsetting x/y/z off the profit, etc.) but I'm concerned that, as our share of the 'profit' will be below each of our personal allowances (and thus not liable for any UK tax), we'll end up paying tax on it in Australia... My husband is looking at jobs earning around $120k - now I have no idea what the tax rate is on this kind of salary but, say it's 40%, does that mean we'd pay 40% tax on our UK 'profit'? (I've put it in quote marks as there won't actually be any profit - our rent won't cover our repayment mortgages but as these can't be offset against the profit, the taxman will think we're making a profit!).

 

Thanks in advance for clarification on this matter (and hopefully to put my mind at rest!).

 

I-F

[Peach]

but I'm concerned that, as our share of the 'profit' will be below each of our personal allowances (and thus not liable for any UK tax), we'll end up paying tax on it in Australia... My husband is looking at jobs earning around $120k - now I have no idea what the tax rate is on this kind of salary but, say it's 40%, does that mean we'd pay 40% tax on our UK 'profit'? (I've put it in quote marks as there won't actually be any profit - our rent won't cover our repayment mortgages but as these can't be offset against the profit, the taxman will think we're making a profit!).

 

If you are coming on a permanent visa, then yes the repayment part of your mortgage is considered income and used in calculating your Australian tax liability. Even if it is under the UK tax threshold.