Owning properties in the UK and Australia

[Letsdoit]

Hi there,

Does anyone here who is a dual Citizen of the UK and Australia own property in both countries? Is it a good idea investment strategy wise?

I currently have a principal place of residence in AU and am thinking to try to refinance before I go back to live in the UK, rent out my place and use the equity to purchase a place to live in the UK.  So the one in AU would end up a long term investment property. 
 

The challenge I have is if I sell the AU property I will never be able to afford to buy back into this area if I did want to come back.

Does anyone have any insight into all of that? Does anyone here own a property in each country or do you think it’s better to sell up completely before moving?

thanks

[MARYROSE02]

I have not used one property in Australia to finance buying one in the UK (or vice versa), but I do own a home in both countries. When I went back to England in 1997 I rented out my flat in Sydney, and after my parents died, I bought their house, which is now rented out as I'm back in Sydney.

Depending upon home prices in your part of Australia, it's true that if you sell up you MIGHT not be able to afford to buy back in. Someone told me that the other day, now I'm on the Gold Coast, warning me that if I sold my place in Sydney I might not be able to buy back at the same level. Judging by prices here my one bedroom flat in Sydney would pay for a two bedroom in Surfers Paradise. So, I MAY rent out my Sydney flat if I decide to live here in SP more or less permanently.

I did not have a mortgage to worry about on either property (I did have one on my Sydney place when I bought it) so my situation is probably different to yours. I don't have any problem managing the home in the UK as I have a real estate agent to manage it for me (as I did for my Sydney flat when I was in England

I would not advise renting out a place and handling it yourself as that would be a hassle when repairs are needed, or a change of tenant. You may have to submit tax returns in both countries too, if you have an income in both, as I do.

[Marisawright]

2 hours ago, Letsdoit said:

I currently have a principal place of residence in AU and am thinking to try to refinance before I go back to live in the UK, rent out my place and use the equity to purchase a place to live in the UK.  So the one in AU would end up a long term investment property. 

The challenge I have is if I sell the AU property I will never be able to afford to buy back into this area if I did want to come back.

Does anyone have any insight into all of that?

If you refinance your Australian property and then use the proceeds to buy your residence in the UK, the interest on your Australian mortgage won't be claimable as an expense (on your Australian tax return). That will make the Australian property less tax-effective than it would normally be.  

Whether it makes sense also depends on how old the property is - if it's fairly new, which means you can claim a decent amount of depreciation, then it could be worthwhile. If it's old, then it may be debatable.

However, all that is irrelevant if you think there's a good chance you may return to live in it again. As you say, if you let it go, you may not be able to get back into the Sydney market. That is what happened to us.  

 

[rammygirl]

It is doable. We did but mortgages were not an issue so can’t comment on that.

We rented out Aussie house and lived in uk for about 6 years.  You will need to do a tax return in both countries.  ATO get first dibs as the income arises in Aus. There is a flat tax rate with no allowance so all income after deductions will be taxed. HMRC will also assess the income under uk rules and take into account any tax already paid  to the ATO. You may still owe tax in uk as deductions are not as generous any over pay can not be offset against your other income as it can in Aus so tough.

Get a very good agent and insurer and an accountant that can work over the two tax systems, there are a few.

You need to do the maths to ensure you can cover the mortgages.

You will need to check capital gains rules in case you decide to sell down the line.

 

[Letsdoit]

Thanks for the replies everyone. My understanding of the tax rules is a bit fuzzy. So is it that the AU property is assessed under the AU tax rules? And then the AU tax return is then given to the UK?

So basically can I still offset the expenses of the interest part of the AU mortgage?

In the UK you can’t deduct the mortgage interest expenses can you? Does the UK then apply its tax rules over the top of the AU one and charge you more tax as a result?

Hope that makes sense! 
 

 

[Marisawright]

1 minute ago, Letsdoit said:

My understanding of the tax rules is a bit fuzzy. So is it that the AU property is assessed under the AU tax rules? And then the AU tax return is then given to the UK?

So basically can I still offset the expenses of the interest part of the AU mortgage?

In the UK you can’t deduct the mortgage interest expenses can you? Does the UK then apply its tax rules over the top of the AU one and charge you more tax as a result?

If you're living in the UK and you own an Australian property, then you're classed as a foreign investor in Australia, and you'll have to pay Australian tax according to Australian tax rules for foreigners.   There is no tax-free threshold and it's a flat rate.  You can claim depreciation on the property so it's worth getting a valuer to do a depreciation report before you rent it out.

Normally, you can claim mortgage interest expenses on your Australian tax BUT that's only if you took the mortgage to buy the rental property.  If the purpose of the mortgage is to buy your own home somewhere else, you can't claim the interest.  

Once you've paid the Australian tax, then you declare the income on your British tax return, and the Inland Revenue tax you according to the British tax rules.  However, you also declare the amount of Australian tax you've already paid, and they'll deduct that from the British tax due and you just pay the difference. 

[Letsdoit]

So do you mean that the UK reviews the Australian return and will also tax the mortgage interest deduction as well(because they’ve applied their rules)?

Also could I not just get a new mortgage in AU before I go and get the equity out of the house? Then but a house with that cash in the UK?

[Marisawright]

37 minutes ago, Letsdoit said:

So do you mean that the UK reviews the Australian return...

Also could I not just get a new mortgage in AU before I go and get the equity out of the house? Then but a house with that cash in the UK?

No, the UK does not review the Australian return.  There is a box on the UK tax return where you state what tax you paid in Australia, and they take that figure into account.

That's the whole point. If you get a new mortgage in Australia before you go, the purpose of that loan is to provide finance for the house you're going to live in. That makes it not tax deductible. 

[MARYROSE02]

I remember now the thing that stuffed me up three or four years ago. I had my UK income paid mostly free of tax but I did not make allowance for Provisional Tax and when I had a relatively good year for income I ended up with a large tax bill for both provisional and ordinary income tax, and HECS come to think of it. I had to get a repayment plan organized with the ATO
.

[Ken]

On 30/11/2020 at 18:45, Letsdoit said:

So do you mean that the UK reviews the Australian return and will also tax the mortgage interest deduction as well(because they’ve applied their rules)?

Also could I not just get a new mortgage in AU before I go and get the equity out of the house? Then but a house with that cash in the UK?

There is extensive information sharing between the ATO and HMRC so HMRC will notice if you don't declare the income that is on your Australian tax return. But as others have pointed out interest is only claimable on a mortgage taken out to buy an investment property. Interest on re-mortgaging an investment property is only allowable to the extent that it repaid the original loan or was to renovate the investment property. Interest on the part of the loan used for other purposes (such as to buy a house to live in) is not tax deductible in either Australia or the UK.

A tax efficient option is to sell the house in Australia and use as little as possible of the proceeds to buy an investment property with the rest financed by a mortgage. You can then use the rest of the proceeds to buy the house in the UK that you're going to live in.

One thing to be wary of is the CGT if you need to sell an Australian property after you leave the country. You will be taxed as a foreign resident and in almost all cases will not be eligible for any of the allowances including the main residence exemption and the 50% discount for owning the asset for over 12 months. This makes it even more sensible to sell your house before leaving Australia (whether or not you then buy an investment property) so as to realise the gain while it is still exempt from tax. If it is only an investment property that you sell at least you won't be paying tax on gains you made while you lived in Australia even if you are still going to have to pay twice as much tax as an Australian resident would have done (note that returning to Australia and taking up residence again before selling the property is your best option).