le petit roi Posted June 27, 2014 Share Posted June 27, 2014 Simple question, Is renting a mortgage free UK property a worthwhile and financially viable exercise when living in Oz? Is the rental income classed as foreign income and taxed at an obscene rate or is it assessed as personal income and treated (for tax purposes) as any other income stream? I expect the property to fetch 450-500 GBP (less expenses) in the current market. No decision yet, the other option is to sell the property...not sure what taxes I would be up for there but I suspect very little since the GFC wiped out many years capital gains and despite the small uplift in house prices in the last year or so. Quote Link to comment Share on other sites More sharing options...
fifi69 Posted June 27, 2014 Share Posted June 27, 2014 Don't really know the answer...but we rent our UK property but just don't mention it at Oz tax time. we don't actually make any money on it, the rent just covers the mortgage. We do still have to do UK tax self assessments though because of it, which is a pain. Quote Link to comment Share on other sites More sharing options...
Notts Posted June 27, 2014 Share Posted June 27, 2014 Simple question, Is renting a mortgage free UK property a worthwhile and financially viable exercise when living in Oz? Is the rental income classed as foreign income and taxed at an obscene rate or is it assessed as personal income and treated (for tax purposes) as any other income stream? I expect the property to fetch 450-500 GBP (less expenses) in the current market. No decision yet, the other option is to sell the property...not sure what taxes I would be up for there but I suspect very little since the GFC wiped out many years capital gains and despite the small uplift in house prices in the last year or so. What visa are you on? If you are on a temporary visa such as a 457, then there is a concession whereby your overseas income is not subject to Australian tax. If it is assessable, then the net income is taxed at normal rates. Not mentioning it in your tax return when you are required to would be illegal. You would also be required to pay UK tax if the income was above the personal allowance (which is available to non-resident UK citizens, at least for now). Regarding selling the property, you may be liable for Australian capital gains tax (CGT). Again if you are on a temp visa this isn't applicable. Otherwise you would need to consider the change in value in AUD since you became tax resident in Australia. Do you have a property in Australia? If not, then selling your UK property lass than six years after moving means that you are probably exempt from Australian CGT. Non-residents don't currently pay UK CGT, but this might be about to change. Quote Link to comment Share on other sites More sharing options...
le petit roi Posted June 27, 2014 Author Share Posted June 27, 2014 I'm an Aussie Citizen and had the property for more than 6 years. Never rented it out before, only for family use and when I go back but its getting such a hassle to manage I'm thinking of getting an agent to manage - or sell. For being managed, it had better start to earn its corn :-) No intention of not declaring tax; I want to sleep easy at night. That said, like everyone, I would like to keep the tax bill to a minimum. There won't be too much of an Oz CGT since the price of the property is less now than when I moved to Oz as well as the Aussie dollar a lot weaker....it has got quite a way to go before there is any CGT payable I think. Quote Link to comment Share on other sites More sharing options...
Guest Posted June 27, 2014 Share Posted June 27, 2014 Don't really know the answer...but we rent our UK property but just don't mention it at Oz tax time. we don't actually make any money on it, the rent just covers the mortgage. We do still have to do UK tax self assessments though because of it, which is a pain. Are you on a 457 visa? If not, then this is not the best approach at all - the tax breaks for property letting in Australia are fabulous, that's why so may people do it. Quote Link to comment Share on other sites More sharing options...
Guest Posted June 27, 2014 Share Posted June 27, 2014 Simple question, Is renting a mortgage free UK property a worthwhile and financially viable exercise when living in Oz? Is the rental income classed as foreign income and taxed at an obscene rate or is it assessed as personal income and treated (for tax purposes) as any other income stream? I expect the property to fetch 450-500 GBP (less expenses) in the current market. No decision yet, the other option is to sell the property...not sure what taxes I would be up for there but I suspect very little since the GFC wiped out many years capital gains and despite the small uplift in house prices in the last year or so. It is classed as foreign income but only taxed at the normal rate, in fact there are so many things that you can claim as 'asset depreciation' that you will probably get a tax rebate. It may actually make sense to re-mortgage it on an 'interest only' basis as the interest is tax deductible (obviously invest the proceeds wisely so it can be paid off again should you wish to) However renting a house out isn't all about finance, we had our house seriously wrecked by tenants (£10k's worth of damage) - I am not saying it's common but it happens. Quote Link to comment Share on other sites More sharing options...
winter1 Posted June 28, 2014 Share Posted June 28, 2014 It is classed as foreign income but only taxed at the normal rate, in fact there are so many things that you can claim as 'asset depreciation' that you will probably get a tax rebate. It may actually make sense to re-mortgage it on an 'interest only' basis as the interest is tax deductible (obviously invest the proceeds wisely so it can be paid off again should you wish to) However renting a house out isn't all about finance, we had our house seriously wrecked by tenants (£10k's worth of damage) - I am not saying it's common but it happens. I think you will find that only the interest on the original mortgage is tax deductible not on a remortgage,so this may be an unwise approach. I also strongly urge anyone to declare it on your tax return not only are the penalties heavy if you are caught, but you are also able to negative gear it even though it is not in Australia. Quote Link to comment Share on other sites More sharing options...
le petit roi Posted June 28, 2014 Author Share Posted June 28, 2014 However renting a house out isn't all about finance, we had our house seriously wrecked by tenants (£10k's worth of damage) - I am not saying it's common but it happens. I realise this hence I've never considered tenants before but I'm spending too much time at night communicating with other residents in the building and with the building managers that I'm at least now exploring my options, which does include selling. One other possibility is to get a small mortgage for another property and have the 2 properties finance themselves. The downside is that I am then feeling like a property speculator and while it won't be ruled out, not sure thats a path I want to go down. I need to see an accountant asap....going to the UK shortly and I'll have decisions to make when I'm there. In addition to instructing for any necessary remedial work on the property, I'll need to either arrange a property manager or sell. The status quo isn't an option. Complicated a bit more in that I don't see myself living in Oz the rest of my life and because of that, unless there is an overwhelming case, I don't really want to sell overseas assets and bring the capital to Oz. If I have to sell, I'd keep the cash in UK....and thats where a 2nd property comes in given the crap interest rates in the uk at the moment. Quote Link to comment Share on other sites More sharing options...
Guest Posted June 28, 2014 Share Posted June 28, 2014 I think you will find that only the interest on the original mortgage is tax deductible not on a remortgage,so this may be an unwise approach. I also strongly urge anyone to declare it on your tax return not only are the penalties heavy if you are caught, but you are also able to negative gear it even though it is not in Australia. Seems strange that a re-mortgage wouldn't be tax deductible - it could tie you into to a high mortgage rate for 25 years or more, is that in UK tax law, Australian tax law or both? I have rented out properties for 15 years (in the UK) and never heard that but then I have never re-mortgaged. I agree entirely with declaring it on both UK and Australian tax returns - if you register as a 'non-resident landlord' you do not pay tax in the UK but tax returns are still required (as I found out to my cost - well not cost in the end but I had to go to appeal) It is really advisable to have an accountant with good knowledge of both systems, especially if you are not on a PR visa or in the years you move from one country to the other or from temp to PR. Quote Link to comment Share on other sites More sharing options...
Guest Posted June 28, 2014 Share Posted June 28, 2014 I realise this hence I've never considered tenants before but I'm spending too much time at night communicating with other residents in the building and with the building managers that I'm at least now exploring my options, which does include selling. One other possibility is to get a small mortgage for another property and have the 2 properties finance themselves. The downside is that I am then feeling like a property speculator and while it won't be ruled out, not sure thats a path I want to go down. I need to see an accountant asap....going to the UK shortly and I'll have decisions to make when I'm there. In addition to instructing for any necessary remedial work on the property, I'll need to either arrange a property manager or sell. The status quo isn't an option. Complicated a bit more in that I don't see myself living in Oz the rest of my life and because of that, unless there is an overwhelming case, I don't really want to sell overseas assets and bring the capital to Oz. If I have to sell, I'd keep the cash in UK....and thats where a 2nd property comes in given the crap interest rates in the uk at the moment. Without knowing the details I am not sure how having tenants would reduce your workload - even with a 'fully managed' service. In fact you would probably find yourself communicating to other residents, building managers AND a letting agency. Of course it depends on the kind of issues you are having to deal with. I would recommend Alan Collett (he is a member on this forum), his practice specialise in UK/Australian tax matters and would definitely be able to advise on the right way to arrange your affairs to maximise the generous tax breaks for landlords in Australia. (Even landlords of overseas properties) A second property mortgaged certainly makes some sense financially but in increases your workload and risks - you would need to get an ex-pat mortgage I would think and I am not sure whether the interest rates are as favourable as those in the UK at the moment. Good luck with the decision Quote Link to comment Share on other sites More sharing options...
le petit roi Posted June 28, 2014 Author Share Posted June 28, 2014 If there are tenants, its unrealistic for me to manage from Oz. It was my hope a property manager would take care of the day to day issues and interface with the tenants, communal building management, contractors, etc and I'd get involved only to authorise expenditure. Maybe I'm being naive and simplistic with too high expectations. It all sounds complex. Time to speak to an accountant who knows the systems before I venture into anything. Cheers Quote Link to comment Share on other sites More sharing options...
Guest Posted June 28, 2014 Share Posted June 28, 2014 If there are tenants, its unrealistic for me to manage from Oz. It was my hope a property manager would take care of the day to day issues and interface with the tenants, communal building management, contractors, etc and I'd get involved only to authorise expenditure. Maybe I'm being naive and simplistic with too high expectations. It all sounds complex. Time to speak to an accountant who knows the systems before I venture into anything. Cheers I can only go by my own experience - if you have a fully managed service and the tenant reports a problem with the property (e.g. a leaking tap) then the letting agent will organise a contractor to remedy and deduct the cost from the rent that month. Usually you agree an amount that can be spent without authorisation - we went for £50. Emergency repairs will be done without authorisation if they cannot contact you for some reason. If there are problems with the tenant though e.g. they do not pay the rent or they are anti-social and you need to have them evicted then the letting agent do not get involved (you can take out insurance to cover your costs but you still have to engage solicitors etc. yourself) and they do not deal with neighbours or the local council. I cannot imagine the letting agent would deal with communal building management as you are the owner but I have no experience of that and maybe in areas where flats and apartments are common letting agents may offer that service. Ultimately you may well be able to get the level of service you want from particular letting agents for the appropriate cost but realistically I think you would be exchanging the hassles you have at the moment for new ones so it is probably more about your long term plans and the financial position. As you say time to see an accountant! Quote Link to comment Share on other sites More sharing options...
winter1 Posted June 28, 2014 Share Posted June 28, 2014 (edited) Seems strange that a re-mortgage wouldn't be tax deductible - it could tie you into to a high mortgage rate for 25 years or more, is that in UK tax law, Australian tax law or both? I have rented out properties for 15 years (in the UK) and never heard that but then I have never re-mortgaged. I agree entirely with declaring it on both UK and Australian tax returns - if you register as a 'non-resident landlord' you do not pay tax in the UK but tax returns are still required (as I found out to my cost - well not cost in the end but I had to go to appeal) It is really advisable to have an accountant with good knowledge of both systems, especially if you are not on a PR visa or in the years you move from one country to the other or from temp to PR. I think you will find the remortgage rule is both in Australia and the UK. The reason is because you could keep remortgaging every time your equity rose and claim more tax relief on the same asset. http://www.property118.com/can-i-claim-tax-relief-on-remortgage-interest/61467/ This is a UK view I think the ATO is wise to tax minimisation between spouses in Australia and this may not be allowed. I rented a UK property for 12 years before disposing of it and took my advice from a CPA accountant with UK and Australian credentials. The ATO website does generally have info on this but is down at the moment. Edited June 28, 2014 by winter1 Quote Link to comment Share on other sites More sharing options...
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