Renting your property out in Uk

[carlymac]

Hi Everyone

I know this may be a bit of a silly question, has anyone rented their property out in the uk rather than selling and if you did can you release the equity to take with you? :huh:

Thanks everyone

[IAN NINA & GEORGE]

we are looking into this this at the moment so we can get bck out to perth asap we went to activate our visas the other week

[KazzE]

The short answer is YES

We are going to remorgage and take some of our equity, I want to try and take as much as we can without making the repayments too high, I want the rent to cover our costs - morgage, insurance and agent costs

BUT there are a lot less morgages around and you need around 25% deposit or the lenders will not even look at you however low a risk you are (according to our morgage broker)

[Phoenix]

The short answer is YES

We are going to remorgage and take some of our equity, I want to try and take as much as we can without making the repayments too high, I want the rent to cover our costs - morgage, insurance and agent costs

BUT there are a lot less morgages around and you need around 25% deposit or the lenders will not even look at you however low a risk you are (according to our morgage broker)

 

speak to a financial advisor about offsetting, this way you can take out a 75% mortgage on your house keep all the equity in an offset account and pay no more than a mortgage at your current equity level.

 

The advantage of offsetting is that the cash is in a liquid form so you can use it as you need it, or leave it there to offset the mortgage.

[Lisa&Martin]

Both KazzE and Phoenix make good points, but maybe I can add more details:

 

1) your current mortgage lender would expect you to change to a BuyToLet mortgage in order to allow letting. Most of these mortgage products require you to have at least 20% to 25% equity in the property, and they will also require a lettings valuation from a lettings agent. The idea is that each monthly rental income will cover approx 110% of each monthly interest payment on the mortgage (the percentage will differ from lender to lender). Be aware that many BTL mortgages are at slightly higher interest rates than your average mortgage (the bank see it as higher risk as it's effectively a business enterprise).

2) However, on occasion your current mortgage company may give you permission to rent for a fixed period without asking you to change the mortgage type. They are unlikely to do this, however, if you want to release equity.

3) Whilst offset mortgages are a marvellous thing and can be very flexible, they are often not allowed on BTL properties. Woolwich, for example, restrict them to owner-occupied. I think from memory C&G used to be more flexible. If you don't understand offset mortgages have a good hunt around the web and there are some good explanations, I think Intelligent Finance has a good site on this.

4) Be aware that it is only the INTEREST element of any mortgage that can be charged against your rental income for tax purposes, ie not the whole amount if you are on a repayment mortgage. Therefore it often makes sense to change the mortgage repayments to interest only.

5) In your calculations expect to have the property rented for only 10 months of the year. This is average, the rest of the time it is either between lettings or someone is signed up but not able to move in immediately due to job / current letting contract expiring.

6) Look for a regsitered agent, eg with ARLA. there's a great site called Landlordzone, have a search for threads where new landlords are looking for start-up advice and you'll get a whole list of do's and don'ts.

7) Feel free to send me any questions as a PM if you get stuck!

[Guest Pinhead]

Hi Lisa&martin

Just spotted where you are, I live in Farnham Royal!

[KazzE]

Great info and advice thanks I will talk to him about offset

 

There is so much to take on board with letting out which is why it is my last option, but it is looking more and more like our only option due to lack of viewers let alone buyers!

 

Karen X

[Lisa&Martin]

Well hello there, pinhead-down-the-road! We are applying to move to Sydney on a 163 business sponsorship visa and had our state sponsorship approved on Friday. So it's been a happy weekend! I figured since this whole 'moving to the other side of the world' thing is about to get more real I might as well learn a bit more about it, hence am starting to trawl some web forums. We currently run a business consultancy (very transportable to Oz) but have also been letting properties for about 10 years. We sold 3 houses last years in preparation to go, but still have 7 left.....That was meant to be the capital to take with us. Oh well! So even I am now looking to try out some letting agents, figure I might as well sort out a good one sooner rather than later. Having done lettings for a while though I do know the pitfalls and it's a bit scary leaving all your valuable property to some agency to look after. I've read many a nightmare story on Landlordzone. Send me a message and tell me ALLLLLL about yourself....

[Phoenix]

There are BTL opportunities in offsetting, if your FA cant identify them drop me message and ill put you on to an FA that can.

[Guest 7gotooz]

Hi Guys

 

A quick question about a worry we have - if you rent out your UK home -the rent is a taxable income does that mean if we sell the house in a couple of years (when the market improves) will we be liable for Capital Gains Tax on the profit of the sale & does anyone know what % CGT is?

 

I asked in the Inland Revenue office here in London & was told there was no one their who was qualified to answer that question !!!!!!LOL

 

Take care

 

Rachel

[Guest Pinhead]

In short summary.

 

The UK tax rules state that if you previously lived in the property you have 3 years in which to sell the property without incurring capital gains tax. In Australia the rules are more generous as you get 6 years.

Where you pay the tax depends upon where you are resident for tax and the status of your visa.

If you sell after the 3/6 years you are only assessed on the gains after that period (ie the cost base is reset to that date rather than when you actually purchased).

 

Seek specialist taxation advise to ensure how this applies to your particular circumstances.

[Guest 7gotooz]

In short summary.

 

The UK tax rules state that if you previously lived in the property you have 3 years in which to sell the property without incurring capital gains tax. In Australia the rules are more generous as you get 6 years.

Where you pay the tax depends upon where you are resident for tax and the status of your visa.

If you sell after the 3/6 years you are only assessed on the gains after that period (ie the cost base is reset to that date rather than when you actually purchased).

 

Seek specialist taxation advise to ensure how this applies to your particular circumstances.

 

 

Thanks thats great - we are applying 175 PR so we will be paying tax in Oz - I assume we have to declare this house as our `main UK residence`& declare any income it makes for tax.

 

We are lucky to have quite a bit of equity tied up in the house & it will go a long way too helping us buy the house we want in Oz so we dont want to lose it all in a big tax bill !!!!!

 

Thanks again

 

Rachel

[Guest Eindhoven]

Hi

 

We are renting our house in the UK. And on recent trip back to the UK we saw our FA and completed our tax forms. You will only pay tax on the income from the property if the rent is more than the interest, she told us to treat it like a business and you only pay tax on the profit. Our interest per month is over £950 and our income is £925 so we are not receiving more.

 

Our Mortgage is with RBS and they have been fantastic. As we are in Australia on 457 Visa's we do not have to commit to a BTL mortgage at this stage unless we do take up permanent residency.

 

Good luck, it's a mine field out there!

[Guest Pinhead]

Thanks thats great - we are applying 175 PR so we will be paying tax in Oz - I assume we have to declare this house as our `main UK residence`& declare any income it makes for tax.

 

We are lucky to have quite a bit of equity tied up in the house & it will go a long way too helping us buy the house we want in Oz so we dont want to lose it all in a big tax bill !!!!!

 

Thanks again

 

Rachel

 

Yes if you are a taxable resident in Oz you would declare you net income from your house (gross rent less EA fees, interest on mortgage, repairs,etc) on your oz tax return. Your UK EA is by law required to deduct tax at the basic rate (20%) unless you apply to the IR for a certificate, this is easy to do. However if the tax is deducted you should still be able to claim double taxation relief on your oz return.

 

I would advise you to seek taxation advise from an oz tax expert. You need to take into account other factors such as exchange rates with relation to income/deductables and cash in accounts outside Oz.

[Alan Collett]

Well hello there, pinhead-down-the-road! We are applying to move to Sydney on a 163 business sponsorship visa and had our state sponsorship approved on Friday. So it's been a happy weekend! I figured since this whole 'moving to the other side of the world' thing is about to get more real I might as well learn a bit more about it, hence am starting to trawl some web forums. We currently run a business consultancy (very transportable to Oz) but have also been letting properties for about 10 years. We sold 3 houses last years in preparation to go, but still have 7 left.....That was meant to be the capital to take with us. Oh well! So even I am now looking to try out some letting agents, figure I might as well sort out a good one sooner rather than later. Having done lettings for a while though I do know the pitfalls and it's a bit scary leaving all your valuable property to some agency to look after. I've read many a nightmare story on Landlordzone. Send me a message and tell me ALLLLLL about yourself....

 

Please be aware that judiciously timed disposals of investment assets can mean you avoid paying CGT - particularly for subclass 163 visaholders, who are technically temporary tax residents once they have moved to Australia.

 

Best regards.

[Alan Collett]

Hi

 

We are renting our house in the UK. And on recent trip back to the UK we saw our FA and completed our tax forms. You will only pay tax on the income from the property if the rent is more than the interest, she told us to treat it like a business and you only pay tax on the profit. Our interest per month is over £950 and our income is £925 so we are not receiving more.

 

Our Mortgage is with RBS and they have been fantastic. As we are in Australia on 457 Visa's we do not have to commit to a BTL mortgage at this stage unless we do take up permanent residency.

 

Good luck, it's a mine field out there!

 

A couple of comments:

 

1. You remain entitled to a UK personal allowance as a UK citizen (or indeed a citizen of the EU or a Commonwealth country), which means you have to be making fairly reasonable rental profits to pay any tax in the UK.

 

2. As a subclass 457 visaholder you are not required to include UK rental income on your Australian Tax Return.

 

Best regards.

[Alan Collett]

See also this article from Go Matilda News, posted today:

Go Matilda - Your Gateway to Australia - News

 

Best regards.

[Alan Collett]

In short summary.

 

The UK tax rules state that if you previously lived in the property you have 3 years in which to sell the property without incurring capital gains tax. In Australia the rules are more generous as you get 6 years.

Where you pay the tax depends upon where you are resident for tax and the status of your visa.

If you sell after the 3/6 years you are only assessed on the gains after that period (ie the cost base is reset to that date rather than when you actually purchased).

 

Seek specialist taxation advise to ensure how this applies to your particular circumstances.

 

I believe the capital gains tax computations actually work by looking at the capital gain over the whole period (post commencement of residency in Australia in the case of the Australian CGT computation), and then pro rating the whole gain between the exempt period and the chargeable period.

 

In the UK there is also a lettings exemption available for a former main residence which is let out - this can exempt up to £40,000 of gains from the charge to tax (x 2 if the property is jointly owned).

 

Fairly significant amounts of tax can be at stake with property, so some formal tax advice from an advisor who is across UK and Australian tax is generally a prudent strategy.

 

Best regards.

[Guest beermeister]

Agree that specialist tax advice is needed here...

 

But, please remember that under Australian tax regulations, you can only nominate 1 principle place of residence (PPR), wherever that is in the world. So, that means if you nominate your UK house as your PPR and you buy a house in Oz, your Oz house will be subject to CGT for the time that it wasn't your PPR (i.e. while you still have your UK house). If property prices stagnate or go down within your time frame, this may not be an issue (mind you, you can carry forward a capital loss for a certain number of years and offset it against any capital gains you make elsewhere)

 

Australian CGT can be calculated in a few different ways - have a look at ATO website for some worked examples. This is a simplified, but one of the methods calculates your CGT liability by subtracting the indexed cost base (i.e. the cost of the property now assuming it increased in line with inflation since it became a CGT assett) from the actual sale price, then halve that for real Australian property (halve it again if it's in yours and spouse names: although ultimately you both have to pay the CGT on your portion of the gain but you could juggle the ownership of it based on the expected highest salary earner and whether you forecast the property price to go up or down), and you pay CGT on that gain at your top marginal tax rate. Unless it's changed, there is not CGT-free allowance in Autralia like there is in UK.

 

Pretty confusing:wacko:so best to get specialist advice here because your residency status is the biggest area for swings in tax treatment (dependes on your intentions to stay in Oz, family connections, and your behaviour while in Oz; again, see ATO website for examples) and you need to see how the double taxation treaty between Oz and UK will affect you as well (which I don't have a clue about).