Aussie tax on UK property

[Maroubra_Andy]

Hey guys,

I lived in oz for 10 years up until recently when we moved back to the UK for a couple of years to spend time with family.

Plan is to move back to oz in 2020 for good. Question is I’m going to buy a house whilst I’m over here and will likely keep it when I return to oz.

Now, the UK recently introduced some nasty tax clauses for buy to let landlords where the amount of interest on your mortgage that you can deduct reduces to zero over the next couple of years. Basically to discourage buy to let.

However to the best of my knowledge the same rules don’t exist if I reside in oz and have a rental property in the UK, ie I can deduct the entire interest payment from my gross rental income.

Can you guys confirm my understanding as this will likely influence my decision to buy in the UK.

[Aussiepom]

I think the answer to this will be down to whether you will be an Australian resident for Taxation purposes.  If you are, then any income you earn worldwide will be subject to taxation here and subject to our taxation rules; unless of course you've been taxed already on it and there's an agreement in place (which there is).  So if you are a tax resident here, then the question is down to whether the Australian taxation rules will permit you reduce your taxable income by your interest payments.  Will you be eligible for the UK tax free threshold when you're in Australia?

Edited June 26, 2018 by Aussiepom

[Maroubra_Andy]

Yes I would agree with you completely, and that’s in essence my question. I will be a resident for tax purposes and consequently how does the Aussie tax system treat such a situation? 

I believe the answer is I can fully deduct all mortgage related interest against my taxable income, whether that’s from an offshore asset or not.

[Marisawright]

If you're living in Australia and you have a UK rental property, you'll have to submit a tax return in both countries.

The Inland Revenue will tax you as if you're a foreign investor, so you'll need to check what the rules are for that. 

The ATO will tax you as an Australian resident, which means you're entitled to all the normal stuff, exactly the same as if it was a property in Australia. That means you should be sure to get a depreciation report done before you rent it out, so you can claim that too.

[Aussiepom]

50 minutes ago, Marisawright said:

If you're living in Australia and you have a UK rental property, you'll have to submit a tax return in both countries.

The Inland Revenue will tax you as if you're a foreign investor, so you'll need to check what the rules are for that. 

The ATO will tax you as an Australian resident, which means you're entitled to all the normal stuff, exactly the same as if it was a property in Australia. That means you should be sure to get a depreciation report done before you rent it out, so you can claim that too.

I understand that if you are a British citizen, you should still be eligible for your tax free allowance (although you will be taxed on that in Australia). 

I believe if that if you have lived in the property for 6 months or more, you will not be treated as a foreign investor for mortgage purposes (unless you have multiple investment properties already) - and as such would be eligible to have standard UK style mortgage in Australia.  I'm assuming this because the only mortgage provider which provides you a domestic style UK mortgage, if you apply from Australia as a tax resident of Australia is HSBC, and to offer you this mortgage they require that you have lived in the property for at least 6 months since you've owned it.  I've made an extensive post about how I went about securing a mortgage with HSBC on my UK property whilst resident in Australia.  Others in this forum are following suit as the ability to do this with HSBC is saving thousands for people.

Note that i'm not sure depreciation is possible on old properties as they have been assumed to have depreciated already. Any new builds or renovations are eligible for depreciation but there are time limits.

Edited June 27, 2018 by Aussiepom

[Marisawright]

3 minutes ago, Aussiepom said:

I understand that if you are a British citizen, you should still be eligible for your tax free allowance (although you will be taxed on that in Australia). 

I believe if that if you have lived in the property for 6 months or more, you will not be treated as a foreign investor for mortgage purposes (unless you have multiple investment properties already) - and as such would be eligible to have standard UK style mortgage in Australia....

Note that i'm not sure depreciation is possible on old properties as they have been assumed to have depreciated already. Any new builds or renovations are eligible for depreciation but there are time limits.

Interesting about the tax-free threshold.  It seems the UK is more generous than Australia. If you cease to be resident in Australia, you're treated as a foreigner for tax purposes whether you're a citizen or not.

When I said "foreign investor", I was talking about for tax purposes, not for mortgage purposes.  If British citizens retain their tax-free threshold, then maybe there's some kind of special deal for property too - worth double-checking.

Depreciation on the fabric of the building can be claimed for only 40 years from the date of construction. However, you can also claim depreciation for all the fixtures and fittings inside the building, and any enhancements.  So for instance, if you've built an extension, you can claim depreciation on that for 40 years from construction.  If you've renovated the kitchen, installed a new bathroom, purchased new appliances - depreciation on those can all be claimed, though over a shorter period.  So for instance, an old house that's been totally renovated would be worth getting a report on.

[Alan Collett]

Yes, the ability to claim a tax deduction in Australia might mean you look to acquire a newer property.

Feel able to send a PM to me with your email address if you'd like to explore the depreciation issue.

Best regards.