Rental Income on UK property

[baggo]

We will be looking to rent our house in the UK when we move to Sydney in March next year. For the first 8 months after we arrive in Australia I will be working and my wife will be receiving a combination of mat pay (mostly SMP with some occupational mp for the first few weeks). I'm wondering how the tax on rhw rental income would work. I'll have no uk income and my wife will have very little and probably under the personal allowance for the tax year 17/18. Given that the house is in both our names who's taxes is the rental income assessed against - my wife or me? Will it make any difference? I would have thought it best if assessed against me as I will have no other UK income. Thanks for your time.

B

 

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[srh82]

You will need to complete a UK tax return, and I recommend you take some paid tax advice as well.

[Guest]

You need to apply to HMRC to be a 'non-resident landlord', the letting agent then does not need to deduct tax from your income. You will be assessed on the income in Australia that is where you are resident for tax purposes.

 

It is well worth getting an accountant for is familiar with both the UK and Austrailan tax system such as GM Taxation

[Bungo]

We will be looking to rent our house in the UK when we move to Sydney in March next year. For the first 8 months after we arrive in Australia I will be working and my wife will be receiving a combination of mat pay (mostly SMP with some occupational mp for the first few weeks). I'm wondering how the tax on rhw rental income would work. I'll have no uk income and my wife will have very little and probably under the personal allowance for the tax year 17/18. Given that the house is in both our names who's taxes is the rental income assessed against - my wife or me? Will it make any difference? I would have thought it best if assessed against me as I will have no other UK income. Thanks for your time.

B

 

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As the house is in joint names, you split the income and expenses in two and both declare half.

 

You firstly declare your separate halves in the UK, the UK has first bite of the cherry not Australia. In the first year you will likely have a tax burden to UK as you will presumably have had employment income for part of the year. So you pay the tax to HMRC. You then complete the Australian tax return, you again both declare your half of the profit but you also declare the tax paid in UK and this is knocked off the Australian tax bill.

 

After the first year, your rental profit will probably be covered by the UK personal allowance. But it is the same process, UK has first bite of the cherry, you do tax returns for both countries and any tax paid in UK is knocked off the Australian bill - which going forward is likely to be zero. So Australia gets all the tax - but only by default - the UK will always have first bite of the cherry as that is ehere the property is.

[Alan Collett]

Don't forget the opportunity to claim a tax deduction on your Australian tax returns for depreciation of fittings, etc within the let property - plus (potentially) the cost of the building:

http://www.gmtax.com.au/depreciation-rental-property-tax-deduction-on-australian-tax-returns/

 

If you can turn the profit into a loss under Australian tax law you can offset the loss against your other income (including wages taxed under PAYG). This is a concept known as negative gearing, and is used by many in Australia to reduce their income tax liabilities.

 

Best regards.

[evets]

Also remember to inform your mortgage company as you can only redirect your mail for so long before it ends up being sent back to them

[Guest]

As the house is in joint names, you split the income and expenses in two and both declare half.

 

You firstly declare your separate halves in the UK, the UK has first bite of the cherry not Australia. In the first year you will likely have a tax burden to UK as you will presumably have had employment income for part of the year. So you pay the tax to HMRC. You then complete the Australian tax return, you again both declare your half of the profit but you also declare the tax paid in UK and this is knocked off the Australian tax bill.

 

After the first year, your rental profit will probably be covered by the UK personal allowance. But it is the same process, UK has first bite of the cherry, you do tax returns for both countries and any tax paid in UK is knocked off the Australian bill - which going forward is likely to be zero. So Australia gets all the tax - but only by default - the UK will always have first bite of the cherry as that is ehere the property is.

 

This is correct but the accounts for your UK tax return are quite different to the accounts for your Australia one - there are many more expenses in Australia and 'negative gearing' applies so the likely outcome for most people is paying no tax in the UK, therefore having no tax to offset against the ATO return but having expenses that can result in a tax rebate on PAYE tax paid in Australia.

 

This assumes you have a sizeable mortgage on the property, if the rent exceeds the mortgage significantly or you don't have a mortgage and you plan to borrow in Australia to buy a home then I would consider remortgaging with a 80% LTV buy to let mortgage and using the equity release to buy your Australian home. Especially in mortgage rates are higher in Australia (we've been back in the UK 3 years so have no idea!). If you don't intend buying in Australia or will be a cash buyer in Australia then obviously that's different.

 

Either way make sure you get yourself a damned good mortgage deal for the duration you intend to rent it out as remortgaging from Australia is difficult.

 

For the first year at leat I really recommend getting an accountant to maximise the benefit of allowances available in both countries.

 

And definitely get a deprieciation report http://www.gmtax.com.au/tax-deductions-in-australia-on-uk-rental-property-depreciation-as-a-tax-deduction/

 

Reading this just reminded me, the rules are different if you are a temporary resident in Australia so again it is worth getting proper tax advice.

[baggo]

Confused. So does that mean that our tax free personal allowance in the UK is worthless after the first full year? I thought the double taxation rules meant you weren't taxed twice on an income. So I thought we were taxed on rental income in UK which given no other income and personal allowance meant no tax payable. But then how can Oz tax on that too? Doesn't seem right?

 

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[Alan Collett]

Confused. So does that mean that our tax free personal allowance in the UK is worthless after the first full year? I thought the double taxation rules meant you weren't taxed twice on an income. So I thought we were taxed on rental income in UK which given no other income and personal allowance meant no tax payable. But then how can Oz tax on that too? Doesn't seem right?

 

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The UK personal allowance has no application in Australia.

 

You are taxable in the UK and in Australia on UK property rental income (less allowable expenses/deductions) - assuming you aren't a temporary tax resident (as defined). The Tax Treaty ensures you have relief in Australia for any tax that is paid in the UK on income that is taxable in both countries.

 

Does this clarify the position?

 

If not - contact GM Tax! Or one of the other professional tax advisors on here that are suitably qualified.

 

Best regards.

[baggo]

OK that makes sense. So if I'm taxed in the UK and pay tax I can deduct that in Oz. But I don't pay uk y tax on it because any profit falls within my personal allowance in the UK then I can still be taxed on it and pay tax in Australia? Is that beneficial in some ways ie through the fact that negative gearing etc can be used if paying tax in Australia? And also that tax rates are lower?

 

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[Alan Collett]

OK that makes sense. So if I'm taxed in the UK and pay tax I can deduct that in Oz. But I don't pay uk y tax on it because any profit falls within my personal allowance in the UK then I can still be taxed on it and pay tax in Australia? Is that beneficial in some ways ie through the fact that negative gearing etc can be used if paying tax in Australia? And also that tax rates are lower?

 

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Yes, the availability of negative gearing in Australia - if you can generate a loss for tax purposes - should be to your advantage financially.

 

The rates of income tax in Australia are at http://www.ato.gov.au

 

Best regards.

[Marisawright]

OK that makes sense. So if I'm taxed in the UK and pay tax I can deduct that in Oz. But I don't pay uk y tax on it because any profit falls within my personal allowance in the UK then I can still be taxed on it and pay tax in Australia? Is that beneficial in some ways ie through the fact that negative gearing etc can be used if paying tax in Australia? And also that tax rates are lower?

 

 

Yes you will still be taxed. The Australian government doesn't care what the rules are in the UK, it only cares what its own rules are.

 

If you've already paid tax in the UK on something, then Australia will deduct that amount from what you'd normally owe them. However, if you pay no tax in the UK then you've got nothing to offset and that means you pay the full whack of Australian tax, exactly the same as you would for an Australian property. So it's not beneficial in any way!

 

However yes, you can benefit from negative gearing if your rental is not covering your expenses. Do note, though, that your mortgage is not an expense - only the interest on the mortgage is. Also capital purchases aren't expenses. But you can claim depreciation which is something that's unknown in the UK.

Edited September 17, 2016 by Marisawright

[Joobles]

As the house is in joint names, you split the income and expenses in two and both declare half.

 

You firstly declare your separate halves in the UK, the UK has first bite of the cherry not Australia. In the first year you will likely have a tax burden to UK as you will presumably have had employment income for part of the year. So you pay the tax to HMRC. You then complete the Australian tax return, you again both declare your half of the profit but you also declare the tax paid in UK and this is knocked off the Australian tax bill.

 

After the first year, your rental profit will probably be covered by the UK personal allowance. But it is the same process, UK has first bite of the cherry, you do tax returns for both countries and any tax paid in UK is knocked off the Australian bill - which going forward is likely to be zero. So Australia gets all the tax - but only by default - the UK will always have first bite of the cherry as that is ehere the property is.

 

We have 2 properties in the U.K., one in joint names and one my husband owned before we got married, can' we split them both between us on our tax returns?

[Guest]

If you have a property in the UK then the cost of a return flight to the UK can be counted as expenses - although if you spend longer than required to visit the property then it is only a percentage - I spent two weeks in the UK and the first week was spent dealing with the property (it had been wrecked by tenants ) and the second week as holiday so was able to include 50% of the flight cost and the accommodation cost for the week I was dealing with the property, as it was owned in joint names then that was 50% of both tickets.

 

Of course this is only relevant if you want to visit the UK anyway - otherwise you'd be better off paying someone to deal with the property, although in the case of ours it would have been impossible & something to think about if you are planning to rent a property out.

[Chortlepuss]

Good advice received - especially re: remortgaging. You need to offset as much as possible against Australian tax. We were mortgage free and got hammered for tax.

[Bungo]

We have 2 properties in the U.K., one in joint names and one my husband owned before we got married, can' we split them both between us on our tax returns?

 

 

No. Just as you cannot put any of your husbands salary on your tax return. :smile:

[Alan Collett]

We have 2 properties in the U.K., one in joint names and one my husband owned before we got married, can' we split them both between us on our tax returns?

 

 

For UK tax purposes - yes, possibly. See form 17: https://www.gov.uk/government/publications/income-tax-declaration-of-beneficial-interests-in-joint-property-and-income-17

 

For Australian tax purposes: probably not. Depends on how you own the property.

 

See this ATO Tax Ruling as well: https://www.ato.gov.au/law/view/document?DocID=TXR/TR9332/NAT/ATO/00001

 

Consider taking advice.

 

Best regards.

[Joobles]

Thanks for the replies.