Australian expat mortgages

[Beca]

We are Aussie citizens residing in the UK (dual citizenship) and are in full time permanent employment.

we are looking to purchase an investment property using our salaries here and a deposit.

anyone know anything or can offer any expertise in this field ? 

Would we qualify for FHOG?  Stamp duty? LMI ?

[Marisawright]

I'm not clear whether you want to buy the property in Australia or in the UK?   I can answer the Australia question.

 

You'll have to submit an Australian tax return to account for the rental income.  You'll be treated as a foreign investor so you'll get NO tax-free threshold, you'll be taxed on every dollar of income.  If you sell before you return to Australia, you'll pay full Capital Gains Tax (residents get a discount). 

Edited April 11, 2018 by Marisawright

[rammygirl]

1 hour ago, Marisawright said:

I'm not clear whether you want to buy the property in Australia or in the UK?   I can answer the Australia question.

When it comes to buying property, citizenship is irrelevant - it's residency that matters. You're non-residents of Australia, therefore you will be treated as foreign investors.  That means you'll need permission to buy a property in Australia.

You'll have to submit an Australian tax return to account for the rental income.  Again, you'll be treated as a foreign investor so you'll get NO tax-free threshold, you'll be taxed on every dollar of income.  If you sell before you return to Australia, you'll pay full Capital Gains Tax (residents get a discount). 

Not quite.  Australian Citizens are exempted from FIRB even if living abroad.  The tax thing is correct though.  No threashold and I think a 30%flat rate on taxable income arising from the property.  Any bank savings interest subject to 10% withholding tax.

After ATO has their cut you declare on your UK tax return, any tax already paid to ATO is credited.  Remember though UK has no negative gearing, any losses on property rentals cannot be offset against other income.

as an investment do your sums.  

 

[Marisawright]

12 minutes ago, rammygirl said:

Not quite.  Australian Citizens are exempted from FIRB even if living abroad.  The tax thing is correct though.  No threashold and I think a 30%flat rate on taxable income arising from the property.  Any bank savings interest subject to 10% withholding tax.

After ATO has their cut you declare on your UK tax return, any tax already paid to ATO is credited.  Remember though UK has no negative gearing, any losses on property rentals cannot be offset against other income.

as an investment do your sums.  

 

Thanks Rammygirl, I learned something!

I agree, if it's an investment then you definitely need to do your sums.  I had an investment property before we moved to the UK.  It was a good investment while I was resident in Australia, but when I did the sums, I realised it would be  a liability once I went overseas, so I sold it.

Of course I now wish I hadn't - but at the time, I thought we could be moving for good, and that would've meant paying an eye-watering amount of capital gains tax if I'd sold it later.  

[Booma]

you wont get FHOG on a investment property. its only for owner occupied first homes.

[newjez]

12 hours ago, Beca said:

We are Aussie citizens residing in the UK (dual citizenship) and are in full time permanent employment.

we are looking to purchase an investment property using our salaries here and a deposit.

anyone know anything or can offer any expertise in this field ? 

Would we qualify for FHOG?  Stamp duty? LMI ?

You could only get Fhog if you lived in the property. Check, but I think it's about a year. Doesn't help if you reside in the UK.

[Beca]

Thanks Guys.

surely when you say you will get taxed on every dollar of rental income  - you mean you will be taxed on the income profit minus any expenses eg real estates rental fees, home and contents insurance, etc.

in layman’s terms if I rented for $300 per week, 30% tax would be $90 - surely it’s tax based on profit made through rental income ?

 

 

[Marisawright]

57 minutes ago, Beca said:

Thanks Guys.

surely when you say you will get taxed on every dollar of rental income  - you mean you will be taxed on the income profit minus any expenses eg real estates rental fees, home and contents insurance, etc.

in layman’s terms if I rented for $300 per week, 30% tax would be $90 - surely it’s tax based on profit made through rental income ?

Yes, but if you were resident in Australia you'd get a tax-free threshold, so you wouldn't get taxed at all on the first $18,200, then the rest would be taxed on a sliding scale below 30%.  If you're an expat, you get no tax-free threshold and the whole amount is taxed at around 30%.  

At that rate, you'd easily be paying double the tax that a local would, and it's unlikely it would make financial sense. You'd be relying on the capital gain of the property - but when you sell, you'll have to pay tax on the capital gain, which will wipe out more than a third of your profit.  So overall, you'd be lucky to make much money from the exercise.

Edited May 4, 2018 by Marisawright

[Beca]

Yes I am aware that as a non resident I would have to pay 30% tax on any profit of rental income.

you say we would be lucky to make any financial gain from the exercise?  the whole point of this exercise is purchase a property from the UK until we are ready to return permanently to Australia.

we plan to rent the house out until such time as we were in a position to return, not particularly to make a profit, but just to make mortgage repayments.

Therefore I can’t see how we would be liable for capital gains as it will eventually be our home when we return.

Also I can’t see why the purchase of a property to rent out in our absence, despite having to pay non resident tax on rental income profit is a pointless exercise in our circumstances- surely it’s better to get on the property ladder whilst in the Uk based on our UK salaries sooner rather wait for our return to AU when we will have to wait a further 2 years to obtain a mortgage due to my partner returning to self employment ?

[Marisawright]

36 minutes ago, Beca said:

the whole point of this exercise is purchase a property from the UK until we are ready to return permanently to Australia.

we plan to rent the house out until such time as we were in a position to return, not particularly to make a profit, but just to make mortgage repayments.

Therefore I can’t see how we would be liable for capital gains as it will eventually be our home when we return.

Also I can’t see why the purchase of a property to rent out in our absence, despite having to pay non resident tax on rental income profit is a pointless exercise in our circumstances- surely it’s better to get on the property ladder whilst in the Uk based on our UK salaries sooner rather wait for our return to AU when we will have to wait a further 2 years to obtain a mortgage due to my partner returning to self employment ?

Well, you didn't explain any of that in your original question.  

I can see the advantage of the proposal now I know the details.  

As for capital gains tax - I'm pretty sure you'd still be stung for capital gains pro rata, for the years between when you purchase it and when you move in.   It would be worth getting a written valuation from a licensed valuer when you move in, so there can be no argument how much the property increased in value over that time.