Capital gains tax.

[Simons]

Hi there, if was to rent our house out here for two years then want to sell after a couple of years, do you have to pay capital gains tax. Or can you just sell and transfer the money. Thanks Simon

[Marisawright]

Yes, you'll pay capital gains tax at the full rate, but only for the increase in value from the time you started renting it out (so be sure you get a written valuation before you go). 

You will also need to pay Australian tax on the rental income.  Once you're overseas, you don't get a tax-free threshold any more, so you'll pay about 30% of the rent in tax.

[Simons]

What is the tax rate on the capital gains, also I thought you only pay tax in one country either in UK or australia is that true.

[Marisawright]

1 hour ago, Simons said:

What is the tax rate on the capital gains, also I thought you only pay tax in one country either in UK or australia is that true.

There is a double taxation agreement.  What that means is that you won't be charged tax on the same income by both countries.  However you must submit a tax return in both countries and for both of them, you must declare your worldwide income.  It can get quite complicated, so it's a good idea to use a tax agent who's familiar with both (not easy to find, but there is someone here - Ken?) 

http://www.austexpatinvestor.com/should-you-rent-out-or-sell-your-home-when-moving-overseas/

The way capital gains tax works is that you work out how much profit you've made (sale price minus how much it was worth when you left the country), and add that whole figure to your other income for that year.  That's your taxable income for the year.

To give you an example, say I sold an investment property in the 2016/17 tax year and I made a profit of $50,000.   My salary for the year was $50,000.   So my total income for the 2016/17 tax year would be $100,000.

 

[rammygirl]

Be aware that if you make any losses on the property you can only claim then back against other rental income in the UK not against any other income.  Not like negative gearing in Australia. 

Also they will still look at all your Australian income in the UK but will offset any tax already paid.  So for example a non resident will have a 10% withholding tax applied to any savings interest.  The UK will still tax the same income and you will pay any balance owing to them.  So not quite correct to say they do not tax the same income twice.

you will need to do a tax return to the ATO if you have any income other than bank interest in Australia as a non resident.

Worth getting an accountant to look at it.

[Marisawright]

Just realised I'm being a twit, I read the OP as if he's living in Australia.   The capital gains rules and calculations for the UK are completely different so ignore me if you're living there!

[Ken]

17 hours ago, Simons said:

Hi there, if was to rent our house out here for two years then want to sell after a couple of years, do you have to pay capital gains tax. Or can you just sell and transfer the money. Thanks Simon

I'm not clear as to which country "here" is, but some general guidance is that for Australian CGT purposes you can claim a house as your primary residence (and so exempt from CGT) for 6 years after you ceased to live there.

[Marisawright]

16 minutes ago, Ken said:

I'm not clear as to which country "here" is, but some general guidance is that for Australian CGT purposes you can claim a house as your primary residence (and so exempt from CGT) for 6 years after you ceased to live there.

....yes, if you're still living in Australia. However, that link is to an article about a pending change in the law. If it goes through, then once you're overseas, that exemption will disappear.

[Ken]

2 minutes ago, Marisawright said:

....yes, if you're still living in Australia. However, that link is to an article about a pending change in the law. If it goes through, then once you're overseas, that exemption will disappear.

I was thinking he was moving to Australia, but yes if he's moving from Australia he should expect that to apply.

[Alan Collett]

Hi simons.

>  Where are you?

>  Where is the property?

>  What is your visa status in Australia?

>  Are you a UK citizen?

Best regards.

[Plentymech]

I'm wondering if I got this correct. Say I made £250,000 profit in the 5 years since renting out my house I lived in for 10 years previously. According to https://www.gov.uk/tax-sell-home/let-out-part-of-home I can get private residence relief for the 10 years I lived there plus the last 18 months even though I did not live there. That comes to 76.6% of the profit I can claim private residence relief for so 11.5 years = 76.6% of the time I owned the property. I can claim this relief on 76.6% of £250,000 which means I get relief on £191,500 of the profit leaving £58,500 taxable at the current residential rate of 28% CGT equaling £16.380 being payable on the original £250,000 profit. I'm glad I bumped into this thread as I had no idea. The longer I keep my house rented out in the UK and the higher the profit from it rising, the more CGT I will pay when I eventually come to sell it.

That's the UK side sorted if that's right. If I wanted to transfer what was left after paying CGT after the sale of the house, I do not understand how it would be taxable in Australia when I have paid the CGT tax on it in the UK and there is the double taxation agreement in place.

[Alan Collett]

13 minutes ago, Plentymech said:

I'm wondering if I got this correct. Say I made £250,000 profit in the 5 years since renting out my house I lived in for 10 years previously. According to https://www.gov.uk/tax-sell-home/let-out-part-of-home I can get private residence relief for the 10 years I lived there plus the last 18 months even though I did not live there. That comes to 76.6% of the profit I can claim private residence relief for so 11.5 years = 76.6% of the time I owned the property. I can claim this relief on 76.6% of £250,000 which means I get relief on £191,500 of the profit leaving £58,500 taxable at the current residential rate of 28% CGT equaling £16.380 being payable on the original £250,000 profit. I'm glad I bumped into this thread as I had no idea. The longer I keep my house rented out in the UK and the higher the profit from it rising, the more CGT I will pay when I eventually come to sell it.

That's the UK side sorted if that's right. If I wanted to transfer what was left after paying CGT after the sale of the house, I do not understand how it would be taxable in Australia when I have paid the CGT tax on it in the UK and there is the double taxation agreement in place.

Where are you tax resident please?

If you are not resident in the UK your UK tax computation appears to be working from the incorrect cost base.

The Tax Treaty does not exempt you from tax in Australia if CGT is payable in the UK.

Best regards.

[Plentymech]

5 hours ago, Alan Collett said:

Where are you tax resident please?

If you are not resident in the UK your UK tax computation appears to be working from the incorrect cost base.

The Tax Treaty does not exempt you from tax in Australia if CGT is payable in the UK.

Best regards.

I'd be an Australian tax resident as I have lived and worked here for the past five years. I've run through the HMRC non resident CGT calculator so have an example the amount due there if or when we sell up but it's the bringing the remaining funds over only to be lose over a third of my house to the Australian Government. Do they do this with people bringing their hard earned savings over as well? I defiantly need to find a suitable accountant / tax adviser to discuss the matter further. 

[Alan Collett]

1 hour ago, Plentymech said:

I'd be an Australian tax resident as I have lived and worked here for the past five years. I've run through the HMRC non resident CGT calculator so have an example the amount due there if or when we sell up but it's the bringing the remaining funds over only to be lose over a third of my house to the Australian Government. Do they do this with people bringing their hard earned savings over as well? I defiantly need to find a suitable accountant / tax adviser to discuss the matter further. 

http://www.collettandco.com/

You are very welcome to contact me.

Best regards.

[Ken]

17 hours ago, Plentymech said:

I'd be an Australian tax resident as I have lived and worked here for the past five years. I've run through the HMRC non resident CGT calculator so have an example the amount due there if or when we sell up but it's the bringing the remaining funds over only to be lose over a third of my house to the Australian Government. Do they do this with people bringing their hard earned savings over as well? I defiantly need to find a suitable accountant / tax adviser to discuss the matter further. 

Important question then is do you own any other properties? If not (e.g. you are renting in Australia) you can still treat the home you once lived in and now rent out as your main residence for up to six years. You can even do that if you do own a property in Australia but as you can only have one main residence at a time (unless it's for less than 6 months) that will expose your Australian house to CGT when you come to sell it.

[Alan Collett]

23 hours ago, Plentymech said:

I'd be an Australian tax resident as I have lived and worked here for the past five years. I've run through the HMRC non resident CGT calculator so have an example the amount due there if or when we sell up but it's the bringing the remaining funds over only to be lose over a third of my house to the Australian Government. Do they do this with people bringing their hard earned savings over as well? I defiantly need to find a suitable accountant / tax adviser to discuss the matter further. 

I think you may need to take some advice, as I very much doubt that 1/3 of the value of your house will be demanded in tax from the ATO.

Best regards.

[Plentymech]

10 hours ago, Alan Collett said:

I think you may need to take some advice, as I very much doubt that 1/3 of the value of your house will be demanded in tax from the ATO.

Thanks Alan, I believe you're correct and I do not wish to scare anyone.Funds brought into Australia are not automatically taxed (but obviously interest gained on them once here is). I have to declare anything over $10,000 to the ATO but this is just for informational purposes, not taxable and yes I will be seeking advice from you when the time gets closer. Thanks.

[Plentymech]

17 hours ago, Ken said:

Important question then is do you own any other properties? If not (e.g. you are renting in Australia) you can still treat the home you once lived in and now rent out as your main residence for up to six years. 

We only have the one property in the UK and rent here.That's very interesting what you put and I have not heard that before. Especially so as we've just hit the five year mark so it may be prudent to investigate options before we get to six.

[Paul1Perth]

 

There is a double taxation agreement.  What that means is that you won't be charged tax on the same income by both countries.  However you must submit a tax return in both countries and for both of them, you must declare your worldwide income.  It can get quite complicated, so it's a good idea to use a tax agent who's familiar with both (not easy to find, but there is someone here - Ken?) 

http://www.austexpatinvestor.com/should-you-rent-out-or-sell-your-home-when-moving-overseas/

The way capital gains tax works is that you work out how much profit you've made (sale price minus how much it was worth when you left the country), and add that whole figure to your other income for that year.  That's your taxable income for the year.

To give you an example, say I sold an investment property in the 2016/17 tax year and I made a profit of $50,000.   My salary for the year was $50,000.   So my total income for the 2016/17 tax year would be $100,000.

 

So if you got a high valuation on the property and got it revalued and it went down (for example) before your tax return. Could you claim for negative gearing? Or whatever that offset would be called?

 

[Alan Collett]

3 hours ago, Paul1Perth said:

So if you got a high valuation on the property and got it revalued and it went down (for example) before your tax return. Could you claim for negative gearing? Or whatever that offset would be called?

 

What you are describing is a capital loss, which can only be carried forward for offset against future capital gains.

Best regards.

[Paul1Perth]

56 minutes ago, Alan Collett said:

What you are describing is a capital loss, which can only be carried forward for offset against future capital gains.

Best regards.

Thanks. Never been rich enough to think about investment properties and rentinh one house out whilst paying two mortgages. Couldn't be bothered with the hassle of being a landlord either. Rather have my time off where I don't have a tenant ringing me about a leaking tap.

[Ken]

23 hours ago, Alan Collett said:

I think you may need to take some advice, as I very much doubt that 1/3 of the value of your house will be demanded in tax from the ATO.

Best regards.

No doubts required. Even without being able to claim it as his main residence, as an Australian resident who's owned the house for over a year he's going to be entitled to the 50% discount. Consequently even if he's the highest rate tax payer and bought the property for a pittance (and it was still worth a pittance when he moved to Australia) there's no way to you can get to a tax bill that's 1/3rd of the value of the house because you need a tax rate of 67% or more to do that (for those not in Australia: no, they don't go that high).

Edited May 23, 2018 by Ken

[Ken]

12 hours ago, Plentymech said:

We only have the one property in the UK and rent here.That's very interesting what you put and I have not heard that before. Especially so as we've just hit the five year mark so it may be prudent to investigate options before we get to six.

Even if you go over the six year mark you should still be able to claim the first six years as your main residence so leaving only a proportion of the gain as taxable - but you may want to investigate how you calculate the gain - do you pay for a valuation at the six year mark or accept that you'll just apportion the gain across the periods when you do sell? Note that you'll also be entitled to the 50% discount as you've owned the property for over a year and can offset tax paid in the UK against the Australian Tax payable (that's the double taxation agreement).