ItchyFeet76 Posted November 2, 2015 Share Posted November 2, 2015 Hi there, I notice there has been a previous thread (in the Vista section) about this topic, but it didn't answer my question and I didn't want to thread-hijack so thought I'd better start up a completely new one, specific to my particular enquiry. Hope that's ok :smile: We're hopefully coming out on a 457 next year (after several failed attempts in the past!) and will be renting out our UK house. If our plans come to fruition and we're able to obtain PR after 2 years via the 186 route, then we'd possibly sell our UK house and buy in Oz. I have several questions if anyone is able to provide answers, please...? :unsure: (1) If we sell whilst Aus residents, are we no longer UK residents for tax purposes (though obvs we'd still do a self-assessment to declare any rental profit)? (2) What's this about a "6 year rule"?? (3) I've seen websites advising people to get their house valued as close toe 06.04.15 as possible, but don't understand if it should be done BEFORE that date or AFTER? We had a valuation done in 2013 and another one last month.... which would they use? (4) We had a loft conversion done in the summer and this has added £50k to the house (but cost us £35k) - how does this affect the taxable amount? Obviously the house's value has increased considerably, but is it only the 'profit' between what we spent and what it added (i.e. £15k) on which they'd tax us? (5) How much would we be taxed? My husband was on the higher-rate tax (40%), so would it be 28%...? Thanks guys, any advice much appreciated :-) I-F Quote Link to comment Share on other sites More sharing options...
Ken Posted November 2, 2015 Share Posted November 2, 2015 (edited) Hi Itchy Feet, 1) It used to be the case that the principal private residence exemption (whereby there is no CGT liability on the sale of your home) could be claimed by non-resident individuals. There was however an announcement a year or two ago that this would be changed - unfortunately being out of the UK and being subject to Australian tax on my worldwide capital gains I haven't been interested enough to keep track of what's happened with the proposed change even though I have an investment property in the UK, but if a date of 6/04/15 has been quoted that may be when the change occurred. If so people who are non-UK residents would be liable to tax on the Capital Gain arising from that date onwards. 2) I don't know of a UK "6 year rule". The Australian "6 year rule" allows you to keep a house that was once your principal private residence as your principal private residence (and hence exempt from CGT) for up to 6 years after you move out of it. You can however have only have one principal private residence at a time - but you don't have to nominate one until you sell one. That means if you sell the property within 6 years and are liable to Australian CGT on your worldwide gains at that time (you'll only be liable to CGT on your Australian gains if still classed as a temporary resident for tax purposes) you'll be able to claim the principal private residence exemption and so pay no tax on the gain in Australia. Note that even without the exemption you would not pay any tax on the gain made before becoming liable to Australian CGT on your worldwide gains. 3) The advice to value as close to 06/04/15 as possible would be to non-residents if the law changed from that date as they would be taxable only on the gain from that date and it's important to be able to calculate how much of the gain should be taxable. It makes no difference if the date is just before or just after that date provide any gain that would have occurred between 06/04/15 and the date of the valuation is so small that it can be ignored and in any case an expert valuer carrying out a valuation after that date should be able to assess what it was worth on that date. Because you were still UK resident on that date the date is irrelevant to you. You'll need the valuation as close as possible to the date you cease to be UK resident for CGT purposes - and separately the date when you become Australian resident for worldwide CGT purposes (as a 457 holder you'll be a temporary resident and exempt from tax on your UK gain). 4) If the loft conversion was done while you're still UK resident and the house your principal private residence there is no CGT liability so you won't be taxed on this £15K gain. You'll only be taxed on the gain it makes after you cease to be UK resident. 5) It's the tax bands that you and your husband are in when the property is sold that count. By that time he won't be a higher rate payer in the UK (and even if he is that only applies to half the gain if the property is jointly owned). You should be able to claim the £11,100 of Capital Gain tax free (each assuming the property is jointly owned and assuming they don't scrap that for foreign residents) and then the 18% rate. Because it's only the gain from leaving the UK that counts (and there's two of you) you're extremely unlikely to reach the 28% rate. Thought I add some numbers to make that clearer. If the house is worth £400,000 on the day you leave the UK then you sell it 2 years later for £440,000 you'll have made a taxable profit of £20,000 each of which £11,100 is exempt and £8,900 is taxed at 18% so you'd have to pay £1,602 of tax each (assuming tax rates haven't change in the intervening period). Edited November 2, 2015 by Ken Quote Link to comment Share on other sites More sharing options...
ItchyFeet76 Posted November 2, 2015 Author Share Posted November 2, 2015 Hi Ken, firstly thanks for answering my questions - I think I understand at least part of it now! Secondly, your reply re: the 6 year rule has opened up another query for me... Will we be liable to pay Aus CGT as well, if we sell within 6 years, or will the Aus-UK double taxation treaty prevent me from paying twice...? So if we leave next June and get the house revalued just before we go, assuming we sell 2-3 years later for £420k, there'll be no tax due as £20k split btwn my husband and I = £10k each which is below the threshold...? Does this sharing of the profit thing also work for rental profit? Ie we can do a joint tax return and split he profit btwn my husband's £11100 and my own, so a profit of £10k divided by 2 = £5k each which is well below our respective thresholds...? Quote Link to comment Share on other sites More sharing options...
Alan Collett Posted November 2, 2015 Share Posted November 2, 2015 (edited) While you have a subclass 457 visa there are no Australian tax issues affecting your UK property - income tax doesn't pertain, and capital gains tax is also a non issue. The situation in Australia changes when and if you obtain permanent residency status in due course. In the UK: > The net rental income is taxable; if the property is jointly owned the net income is split between the joint owners. > As UK citizens you are entitled to the UK personal allowance, even if not UK tax resident. At least this is the case presently: there have been proposals aired to remove the PA from non residents. > There is now a UK CGT charge on non residents who dispose of UK based residential property. This came in on the 6th of April 2015. The CGT Annual Exemption remains available, as does the letting exemption. Remember that the last 18 months of ownership may also be CGT exempt. Hope this helps! Best regards. Edited November 2, 2015 by Alan Collett Quote Link to comment Share on other sites More sharing options...
Gbye grey sky Posted November 2, 2015 Share Posted November 2, 2015 You can also offset sale expenses like Estate Agent Fees and Solicitors fees when calculating the actual gain. It is unlikely that you would make any improvements to the property to offset against your Gain while you are overseas. All expenses you incur as a landlord would be deducted from the rents received to calculate your profit for income tax purposes. Note that this cannot include any mortgage capital payments (if any). Quote Link to comment Share on other sites More sharing options...
ItchyFeet76 Posted November 2, 2015 Author Share Posted November 2, 2015 Thanks for your input guys. Alan, I'm working on the assumption that we wouldn't sell up unless / until we got PR... What are the annual and letting exemptions? Not heard about those before... And when you say the last 18m = exempt, what does this mean exactly...?? Pls excuse my ignorance, I'm useless at anything tax-related (and HMRC don't make their rules easy to inderstand)! [emoji15] Quote Link to comment Share on other sites More sharing options...
Chortlepuss Posted November 3, 2015 Share Posted November 3, 2015 You can offset mortgage interest and expenses on the property against income. You also may be able to claim depreciation (dependent on age of property) so good to get a valuation/depreciation report from a local surveyor. You won't be liable to tax on property on a 457 (as Alan says) but it is important to get all your ducks in a row should you get PR and wish to stay here. This includes (IMO)structuring your mortgage to ensure that you can claim maximum interest. I suspect it may be worth getting a trained opinion to identify your options - we didn't do this and ended up making silly decisions (like paying off mortgage instead of remortgaging with interest only to release capital....). Like you, we came on a 457 visa so at the time had no idea if we would be staying beyond my 2 year contract mark.... Quote Link to comment Share on other sites More sharing options...
ItchyFeet76 Posted November 3, 2015 Author Share Posted November 3, 2015 Hi Chortlepuss, thanks for explaining that. Unfortunately remortgaging isn't an option but luckily one of our 3 mortgages (Yep just one house but erm moved 3 times and took out a different mortgage each time, lol) IS interest-only... With the other two, to work out how much the interest part is, I've gone on an online mortgage calculator and worked out what my repayments would be for those mortgages based on our current interest rate (+1.5% letting fee), term and have selected "interest-only" as mortgage type. Is this correct? Did you sell before you got PR then? I guess if we sold whilst on a 457 then HMRC wouldn't tax us simply because it would still be classed as our primary residence due to the fact that our Aus visa was a temporary one... [emoji848] Quote Link to comment Share on other sites More sharing options...
Gbye grey sky Posted November 4, 2015 Share Posted November 4, 2015 Hi Chortlepuss, thanks for explaining that. Unfortunately remortgaging isn't an option but luckily one of our 3 mortgages (Yep just one house but erm moved 3 times and took out a different mortgage each time, lol) IS interest-only... With the other two, to work out how much the interest part is, I've gone on an online mortgage calculator and worked out what my repayments would be for those mortgages based on our current interest rate (+1.5% letting fee), term and have selected "interest-only" as mortgage type. Is this correct? Did you sell before you got PR then? I guess if we sold whilst on a 457 then HMRC wouldn't tax us simply because it would still be classed as our primary residence due to the fact that our Aus visa was a temporary one... [emoji848] You should receive statements annually from the lender showing a breakdown of interest and capital repayments (I think) but if not you could ask for one. Quote Link to comment Share on other sites More sharing options...
Alaska Posted November 4, 2015 Share Posted November 4, 2015 We were in the exact position that you were in terms of coming out of a 457 and selling up when we got PR (actually we sold 2 houses as we had a rental that had been in negative equity for years). I did our own tax returns whilst it was rented out and used taxcalc software for the UK returns and it was relatively straight forward. However when we got PR and sold up, it was too complicated and I used GM Tax (Alan Collett's company) as there were too many ifs or buts. I have no idea how it was all worked out but it turned out that we didn't owe CGT at all - something to do with losses on the properties or something. Employing them wasn't cheap in terms of $ but I suspect it has more than paid for itself a few times over as I just didn't have the knowledge to interpret all the rules. I know the rules have changed since we sold up (end of 2014) so can't comment on how it might work out for you in terms of CGT. Good luck! Quote Link to comment Share on other sites More sharing options...
ItchyFeet76 Posted November 4, 2015 Author Share Posted November 4, 2015 Yes we get statements so I guess I just look at a certain month's figure and put that down then...? I assume we'll have to use someone like Alan Collett but do they have to be local or is it all done online? When you say 'not cheap' are we talking hundreds or thousands of $$$? [emoji15] I think if we'd moved a few years ago we'd be ok, but the new rules only came into play this April [emoji36] Quote Link to comment Share on other sites More sharing options...
Alan Collett Posted November 4, 2015 Share Posted November 4, 2015 Yes we get statements so I guess I just look at a certain month's figure and put that down then...? I assume we'll have to use someone like Alan Collett but do they have to be local or is it all done online? When you say 'not cheap' are we talking hundreds or thousands of $$$? [emoji15] I think if we'd moved a few years ago we'd be ok, but the new rules only came into play this April [emoji36] We provide a no obligation fixed fee proposal before you make any commitment to us - so feel able to contact me via PM or email (click on my name to the left of this post) as and when you'd like to discuss. We look after clients with UK and/or Aus tax affairs around the world - happy to meet in person if it works for both of us location wise. Best regards. Quote Link to comment Share on other sites More sharing options...
ItchyFeet76 Posted November 4, 2015 Author Share Posted November 4, 2015 Thanks Alan, that's good to know - will bear it in mind if / when we sell [emoji106] Quote Link to comment Share on other sites More sharing options...
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