Paying tax on UK rentals in Oz

[danskitt]

I live in Oz on a PR but own three properties in the UK which don't make enough profit split between my wife and I to become taxable. I have just completed my Oz tax return though and have discovered that I have to pay tax for them over here. I have never brought any of the money though over to Oz and it has just stayed in our UK bank account but I now plan to add it to one of the mortgage's over there. Does this mean I still have to pay Oz tax on it even though it isn't coming into the country?

 

Thanks

Dan

[noworriesmate]

I live in Oz on a PR but own three properties in the UK which don't make enough profit split between my wife and I to become taxable. I have just completed my Oz tax return though and have discovered that I have to pay tax for them over here. I have never brought any of the money though over to Oz and it has just stayed in our UK bank account but I now plan to add it to one of the mortgage's over there. Does this mean I still have to pay Oz tax on it even though it isn't coming into the country?

 

Thanks

Dan

 

It depends what visa you are on (i.e. if you are a permanent resident) - but even if you do there are a number of things you can claim for.

 

NWM

[danskitt]

Yes I am on a permanent residency visa. What kind of things can be claimed for?

[dmjg]

Yep, taxable income.

 

You can claim management charges, service fees, maintenance fees, loan interest payments (not capital repayments), uk tax accountants, any other property costs incurred.

[Gbye grey sky]

Wherever you are tax resident you are liable to tax on your worldwide income (there are exemptions for workers on 457s). Countries have double taxation treaties so if it is taxed at source in the country where it is earned you get a corresponding 'credit' against your tax liability in the country where you are tax resident.

[danskitt]

We have been taxed on the profit in the UK (albeit it was £0 as it was within the tax free allowance) but it seems that when I did the Oz tax return the money has been added to our income in Oz. I haven't lodged the return yet but the estimate at the end of the tax return says that I will have to pay an extra $3600 will this get removed at lodgement?

 

Also If the profit from the UK gets added onto the Oz income could this push me into a different tax bracket meaning I will pay more on my salaried income?

[Peach]

We have been taxed on the profit in the UK (albeit it was £0 as it was within the tax free allowance) but it seems that when I did the Oz tax return the money has been added to our income in Oz. I haven't lodged the return yet but the estimate at the end of the tax return says that I will have to pay an extra $3600 will this get removed at lodgement?

 

Also If the profit from the UK gets added onto the Oz income could this push me into a different tax bracket meaning I will pay more on my salaried income?

 

As a tax resident of Australia your global income is considered as part of your total income on your tax return. If your income is taxed in the country where it was earned this amount can be deducted from the amount you are expected to pay in Australia, as you paid zero the deduction is zero. So the amount owed will remain $3600.

 

Your salaried income will remain unchanged, but your overseas income will be taxed at a higher rate when you do your return.

[danskitt]

Thanks Guys for the replies they have been really helpful to understand how the tax system works.

[centennial]

Thanks Guys for the replies they have been really helpful to understand how the tax system works.

 

Rental income in the UK - 9800 ( after all eligible deductions)

 

In this case -

1. You still would need to file tax return in UK but wont be paying any tax (due to tax free allowance)

2. You would need to declare this income in Australian tax return but wont be paying any tax on it (£9800) at all.

 

is that correct ?

[Gbye grey sky]

Rental income in the UK - 9800 ( after all eligible deductions)

 

In this case -

1. You still would need to file tax return in UK but wont be paying any tax (due to tax free allowance)

2. You would need to declare this income in Australian tax return but wont be paying any tax on it (£9800) at all.

 

is that correct ?

 

If you are Australian resident for tax purposes then you will pay tax on it. If on a temporary visa like a 457 then overseas income is not taxable in Australia so both the above would be correct.

[grahamffc]

Of course it is taxable in Australia, I fail to see why anyone would be surprised at this. The fact it's not been transferred to Australia is irrelevant, that's like saying "I was paid loads of money but left it in my back account".

 

That said, if money is not transferred the Australia Tax Office would never have any knowledge of it's existence, I bet a lot of people don't bother to inform them which is illegal.

[Alan Collett]

Of course it is taxable in Australia, I fail to see why anyone would be surprised at this. The fact it's not been transferred to Australia is irrelevant, that's like saying "I was paid loads of money but left it in my back account".

 

That said, if money is not transferred the Australia Tax Office would never have any knowledge of it's existence, I bet a lot of people don't bother to inform them which is illegal.

 

 

... unless the ATO were to ask HM Revenue to provide details of UK rental income for individuals who say they are resident in Australia.

 

Not that difficult to do, I feel sure.

 

See also information on Project DO IT at the ATO website: https://www.ato.gov.au/General/Correct-a-mistake-or-dispute-a-decision/In-detail/Project-DO-IT/Project-DO-IT/

 

Also, re the exchange of information between tax treaty countries: https://www.ato.gov.au/General/Correct-a-mistake-or-dispute-a-decision/In-detail/Project-DO-IT/Project-DO-IT/?page=7#Collecting_information_through_our_treaty_network

 

Best regards.

[grahamffc]

That assumes you've told the Inland Revenue that you are in Australia, what if you used the UK address of a friend or relative for any correspondence. Obviously it's tax evasion but my point is that I can't see it being difficult to keep the ATO from picking it up.

[Guest]

In any case with three properties and a good accountant I would think that a small 'profit' in the UK could easily become a 'loss' in Australia perfectly legally due to the depreciation allowances allowed on rental properties in Australia.

 

We made a small 'profit' in rent each year on our UK property which still resulted in a not insignificant rebate in Australia as asset depreciation was offset against our earned income.

 

The ATO provide a list of assets that can depreciate and the expected lifespan - I can't find a link right now but a search of the ATO website should find it.

[Alan Collett]

That assumes you've told the Inland Revenue that you are in Australia, what if you used the UK address of a friend or relative for any correspondence. Obviously it's tax evasion but my point is that I can't see it being difficult to keep the ATO from picking it up.

 

 

So you want to let your property and appoint a managing agent.

 

The agent knows you are heading overseas to live, and says s/he will withhold basic rate tax unless s/he gets a clearance from HM Revenue following the lodgement of form NRL1.

 

So you complete form NRL1, which advises where you are now living.

 

You then enter into the Self Assessment tax regime. You complete the Residence supplement to the annual UK tax return to confirm your non residence status - on which you are required to identify where you are resident. You advise Australia.

 

This provides HM Revenue with 2 x forms which confirm you are now living in Australia.

 

What do you think will happen in the event the suggested deception unravels? It wouldn't be unknown for someone to dob in a person carrying on in a manner such as this.

 

Saying you are living at a friend's house in the UK when you are not is most unwise, particularly if you are not an Australian citizen - and even if you are a tax audit isn't a welcome occurrence.

 

Best regards.

[Alan Collett]

In any case with three properties and a good accountant I would think that a small 'profit' in the UK could easily become a 'loss' in Australia perfectly legally due to the depreciation allowances allowed on rental properties in Australia.

 

We made a small 'profit' in rent each year on our UK property which still resulted in a not insignificant rebate in Australia as asset depreciation was offset against our earned income.

 

The ATO provide a list of assets that can depreciate and the expected lifespan - I can't find a link right now but a search of the ATO website should find it.

 

 

Agreed - depreciation claimed on UK property can turn a profit for UK tax purposes into a negatively geared tax loss for Aus tax purposes.

 

This is a much better way to go!

 

Best regards.

[PomKiwi2]

I live in Oz on a PR but own three properties in the UK which don't make enough profit split between my wife and I to become taxable.

 

Hi Dan

 

What is the tax free allowance in the UK for expats with UK rental property?

 

Thanks

[Suzukiscottie]

Personal allowance is circa £10k regardless of whether you are an expat with UK rental property.

 

https://www.gov.uk/government/publications/rates-and-allowances-income-tax/rates-and-allowances-income-tax

[Alan Collett]

Personal allowance is circa £10k regardless of whether you are an expat with UK rental property.

 

https://www.gov.uk/government/publications/rates-and-allowances-income-tax/rates-and-allowances-income-tax

 

 

At the moment - there is presently a consultation under way in the UK in which the withdrawal of the UK personal allowance for non-UK resident individuals is being considered:

https://www.gov.uk/government/consultations/restricting-non-residents-entitlement-to-the-uk-personal-allowance

 

Best regards.

[le petit roi]

At the moment - there is presently a consultation under way in the UK in which the withdrawal of the UK personal allowance for non-UK resident individuals is being considered:

https://www.gov.uk/government/consultations/restricting-non-residents-entitlement-to-the-uk-personal-allowance

 

Best regards.

 

Now having had a bit of time to digest what the proposals are and the comments in this thread, I don't see how the UK removing the tax exemption to non-UK residents materially effects Oz citizens and/or residents on permanent visas.

 

Its well documented that all income generated worldwide by Oz permanent residents is subject to Oz taxation so even if overseas rental income is exempt from tax in the UK, it isn't in Oz and will be taxed accordingly by the ATO. If UK tax is applied to UK income, Australia won't be able to apply taxation on the gross income only that which is net of expenses and UK tax; the UK tax being considered an expense. Hence, those most affected will be those on 457 type visas. Capital Gains if applicable will be treated in a similar manner. If its anything else as I have tried to describe, it is a classic case of double dipping.

 

Is my understanding correct or wholly flawed?

[Alan Collett]

Now having had a bit of time to digest what the proposals are and the comments in this thread, I don't see how the UK removing the tax exemption to non-UK residents materially effects Oz citizens and/or residents on permanent visas.

 

Its well documented that all income generated worldwide by Oz permanent residents is subject to Oz taxation so even if overseas rental income is exempt from tax in the UK, it isn't in Oz and will be taxed accordingly by the ATO. If UK tax is applied to UK income, Australia won't be able to apply taxation on the gross income only that which is net of expenses and UK tax; the UK tax being considered an expense. Hence, those most affected will be those on 457 type visas. Capital Gains if applicable will be treated in a similar manner. If its anything else as I have tried to describe, it is a classic case of double dipping.

 

Is my understanding correct or wholly flawed?

 

Likely to be broadly correct, save that the UK tax liability probably won't be an expense for Aus tax purposes.

 

Rather, it would be creditable against any Aus tax liability arising on the same income.

 

Best regards.

[Alan Collett]

PS. The main effect would most likely be in a compliance sense, in that as things stand it can be possible for an Aus resident with net rental income from UK property to ask HMRC to close the self assessment file so a UK tax return doesn't need to be completed each year.

 

If the personal allowance is withdrawn there will almost certainly then be a need to prepare a UK tax return to establish the quantum of the tax payable to HM Revenue.