renting house out in oz and working in uk

[lismith25]

Hi, looking to go back to uk after 10yrs in qld, do not really want to sell house but rent it out instead just in case things don,t work out for us over there.

Not sure of the tax implications though, would we still get the tax free threshold here if working in uk? We have a large redraw on our property and could use that to negative gear it and put a deposit down on something in uk, checked a lot of posts on here and couldn't find any answers.

Hopefully someone has had the same problem and knows a way around it.

[Marisawright]

Hi, looking to go back to uk after 10yrs in qld, do not really want to sell house but rent it out instead just in case things don,t work out for us over there.

Not sure of the tax implications though, would we still get the tax free threshold here if working in uk?

 

No, if you're not resident in Australia then you don't get a tax free threshold, so you'll be charged 30% tax on your rental income. You can reduce that by claiming your expenses as deductions (agent's fees, landlord's insurance, repairs, termite inspections), but if you borrow against the house to fund a house in the UK, you won't be able to claim the interest on the mortgage (you can only claim on mortgage interest if the money was borrowed to fund investments, not your own home).

 

If you decide to go ahead, get someone in to do a depreciation schedule. That will value the house and its fixtures and fittings at the date you leave, then you'll be able to claim depreciation each year as an expense.

http://www.depreciator.com.au/

 

The other thing to note that if you sell your house now, you won't have to pay capital gains tax. However if you sell after you've left the country, you may be liable for CGT, at 30% of the profit. I suggest you look into that - there are rules that say, if you lived in the house (which you did) then you're exempt from the capital gains tax for a number of years after you rent it out. However, I don't know if that still applies if you become non-resident.

[lismith25]

Thanks Marisa, i thought that was the case. We are well ahead in our mortgage payments so i suppose if we redraw enough to leave the mortgage in negative gearing and we don't make any profit, then they can't tax me 30%.

The money we redraw could go for a deposit for place in uk, although the CGT if i sell the oz property later could be a problem, will have to look into that.

Appreciate your feedback, thanks

[Marisawright]

Thanks Marisa, i thought that was the case. We are well ahead in our mortgage payments so i suppose if we redraw enough to leave the mortgage in negative gearing and we don't make any profit, then they can't tax me 30%.

 

 

Yes they can, sorry! The profit is worked out like this:

 

Rental = x

Expenses = y

Depreciation = z

 

Profit = x - (y + z)

 

You can't claim the interest on the mortgage, because you didn't take the mortgage to buy the house - you've mortgaged the house after buying it, to use for something else, so it's not an "eligible expense".

[wolvesaussie]

How would they know that? I wouldnt do it due to exchange rate but I have a loan in the UK at 1%, I if I was to draw 50,000 out of that to pay for a house in australia, Its not a remortgage, its basically taking back what I paid off so far. Its a flexi mortgage they just let me take back virtually everything I put into it.. No one would know you just show the statement saying how much interest your paying on the mortgague, it wont show on the statements you have redrawn some of it I doubt

[Marisawright]

How would they know that? I wouldnt do it due to exchange rate but I have a loan in the UK at 1%, I if I was to draw 50,000 out of that to pay for a house in australia, Its not a remortgage, its basically taking back what I paid off so far. Its a flexi mortgage they just let me take back virtually everything I put into it.. No one would know you just show the statement saying how much interest your paying on the mortgague, it wont show on the statements you have redrawn some of it I doubt

 

I didn't know the mortgage was existing, in that case it's not going to be clear cut and you'll probably get away with it. If you're ever discovered, you will have to pay all the back taxes and pay a hefty fine into the bargain, but that's a risk you may be prepared to take.

[flag of convenience]

They will certainly know that you are no longer in Australia. Tax and Immigration work hand in hand. For example, rental money I imagine will be paid into a bank account. All interest from accounts declared to taxation each year. It is not that easy to get away with monies owing to taxation these days with all the controls in place.

 

As noted if found out and concealment considered deliberate a hefty penalty will be imposed.

[lismith25]

Thanks for the reply's,

The mortgage is currently 95k with a redraw available of 170k, as we have hammered the mortgage recently.

If i redraw 100k [deposit for uk house} then my mortgage payments will increase as my mortgage is now effectivly 195k and i will pay interest on that figure.

If the house is rented and negativly geared so i am not making a profit then i can't see how i am doing anything wrong? If i do make a profit i will pay 30% tax on it as a non resident.

Its just a way to keep a foothold in oz should we ping pong back, something i wish i had done with my uk house when i came out here 13yrs ago.

[Alan Collett]

There's no tax deduction on the interest if - broadly - the purpose of the borrowing/drawdown isn't to acquire an income generating asset.

 

Don't overdo it with the tax deductions.

 

Remember also that Australian property rental income will have a tax consequence if you are a tax resident of the UK - you should be aware of the probable need to enter into the self assessment regime in the UK, and to then complete a UK tax return each year.

 

Best regards.

[Marisawright]

Thanks for the reply's,

The mortgage is currently 95k with a redraw available of 170k, as we have hammered the mortgage recently.

If i redraw 100k [deposit for uk house} then my mortgage payments will increase as my mortgage is now effectivly 195k and i will pay interest on that figure.

If the house is rented and negativly geared so i am not making a profit then i can't see how i am doing anything wrong? If i do make a profit i will pay 30% tax on it as a non resident.

 

 

As Alan says, illogical though it may seem, you'll be breaking the law if you claim the interest. Tax law allows you to claim interest on a loan based on what it's used for.In this case you're using the money to buy your home, not to buy a rental property. If they check the dates and find you redrew the money to buy something else, you'll be in trouble.

[lismith25]

I suppose thats why a lot of people sell when heading back, thanks for your help.

[Marisawright]

Yes it's rough isn't it? We were planning to go back to the UK to retire - not because we don't like Australia, but because we want the freedom to travel more. Unfortunately the tax rules seem designed to make moving countries awfully difficult!!