Returning to UK after aged 60

[Sloth]

2 hours ago, Don QuayPoly said:

Having invested in some great advice, I feel a lot more confident. However if anyone can just clarify exactly what this sentence means  - “I must dispose of my Australian residence whilst still resident in Australia”. 

Does this mean that I must be resident in Australia on settlement day of my house sale, or could I get a flight prior to settlement once contracts are signed, and be in the UK on settlement day ?

I guess it comes down to just what “dispose” means from a tax perspective.

thanks all

 

This is addressed in this article: https://taxquestions.com.au/whether-to-sell-your-ppr-when-going-overseas-to-work/

Edited May 10, 2023 by Sloth

[Don QuayPoly]

24 minutes ago, Sloth said:

This is addressed in this article: https://taxquestions.com.au/whether-to-sell-your-ppr-when-going-overseas-to-work/

Thank you so much Sloth. I really appreciate that. 

[Sloth]

21 hours ago, Don QuayPoly said:

Thank you so much Sloth. I really appreciate that. 

No worries. I only found out because we're doing the same thing as you.

[InnerVoice]

On 10/05/2023 at 17:10, Sloth said:

This is addressed in this article: https://taxquestions.com.au/whether-to-sell-your-ppr-when-going-overseas-to-work/

 

On 10/05/2023 at 17:37, Don QuayPoly said:

Thank you so much Sloth. I really appreciate that. 

Thank you @Sloth, I appreciate this link too as we're also deliberating what to do with our property should we move overseas. And whilst no substitute for professional advice, it's good to have some general information. If I'm going to be charged 32.5% tax on any rental income by the ATO, then I'd want to feel confident in getting a tax credit country of tax residence. There may be a DTA agreement between Australia and many countries, but negotiating the tax system in some countries could be a minefield. And what if you have no income in your country of residence - can you still receive a tax credit over there?

To me it seems that unless one was only going to be a away for couple of years, or moving to a country with a very low tax regime, just selling up is the most straightforward option.

[Marisawright]

1 hour ago, InnerVoice said:

. If I'm going to be charged 32.5% tax on any rental income by the ATO, then I'd want to feel confident in getting a tax credit country of tax residence.

I suggest checking what a tax credit actually means. 

The article in the link suggests that if Australia deducts tax on the rent, then your new country of residence should give you a tax credit to wipe out the Australian tax, and then tax you whatever's due under their tax legislation.    I could be wrong, but I've never understood it that way.

Let's say you're in the UK and rent out your Australian home.  Australia is entitled to tax you as a foreign resident.   You declare that on your tax return, and the UK taxman will then work out your liability for tax on the rent under UK law.  If it's less than you've already paid in Australia, you'll receive a tax credit which cancels out your UK liability, but no more than that.  If it's more than you've already paid in Australia, you'll be charged the extra.

Obviously if that's the way it works, you can't possibly get a tax credit unless you're actually paying tax in your new country.

Like I said, that's how I always understood it, but I could have the wrong end of the stick. I'll be interested to know how it works. 

[Ausvisitor]

11 hours ago, InnerVoice said:

 

Thank you @Sloth, I appreciate this link too as we're also deliberating what to do with our property should we move overseas. And whilst no substitute for professional advice, it's good to have some general information. If I'm going to be charged 32.5% tax on any rental income by the ATO, then I'd want to feel confident in getting a tax credit country of tax residence. There may be a DTA agreement between Australia and many countries, but negotiating the tax system in some countries could be a minefield. And what if you have no income in your country of residence - can you still receive a tax credit over there?

To me it seems that unless one was only going to be a away for couple of years, or moving to a country with a very low tax regime, just selling up is the most straightforward option.

Our plan, but it is 20+ years away yet, is to keep the house in Aus, the UK and the one in Europe and just perpetually ping-pong around them all.

If we get it just right we might even end up not tax resident anywhere (although they'll still find a way to tax us)

[Marisawright]

13 hours ago, InnerVoice said:

To me it seems that unless one was only going to be a away for couple of years, or moving to a country with a very low tax regime, just selling up is the most straightforward option.

Like I said, if I understand it correctly, the tax regime in your new country is irrelevant.  You'll still have to pay that Australian tax.    When you consider how much CGT you'll have to pay when you sell (at the full rate, whereas Australian residents are only charged 50%), the return on investment is unlikely to be enough to make it worthwhile.  

It's a differnt story, as you say, if you're going to be away less than 6 years, and are just renting a home in your new country, so you can claim the Australian home as your primary residence, which avoids the CGT if you return to Australia and subsequently sell.

Edited May 11, 2023 by Marisawright

[Alan Collett]

1 minute ago, Marisawright said:

Like I said, if I understand it correctly, the tax regime in your new country is irrelevant.  You'll still have to pay that Australian tax.    When you consider how much CGT you'll have to pay when you sell (at the full rate, whereas Australian residents are only charged 50%), the return on investment is unlikely to be enough to make it worthwhile.  

It's a differnt story, as you say, if you're going to be away less than 6 years, and are just renting a home in your new country, so you can claim the Australian home as your primary residence, which avoids the CGT if you subsequently sell.

I'd be checking that 6 year exemption if you sell an Aus main residence when not tax resident in Australia ...

Best regards.

[Marisawright]

12 minutes ago, Alan Collett said:

I'd be checking that 6 year exemption if you sell an Aus main residence when not tax resident in Australia ...

Thanks for picking up that error, Alan.  I edited my comment and a bit got lost.  I meant to say, "so you can claim the Australian home as your primary residence, which avoids the CGT when you return to Australia and subsequently sell.  Are you saying that you don't get the exemption for the years you were overseas?

Edited May 11, 2023 by Marisawright

[InnerVoice]

21 hours ago, Marisawright said:

I suggest checking what a tax credit actually means. 

The article in the link suggests that if Australia deducts tax on the rent, then your new country of residence should give you a tax credit to wipe out the Australian tax, and then tax you whatever's due under their tax legislation.    I could be wrong, but I've never understood it that way.

Let's say you're in the UK and rent out your Australian home.  Australia is entitled to tax you as a foreign resident.   You declare that on your tax return, and the UK taxman will then work out your liability for tax on the rent under UK law.  If it's less than you've already paid in Australia, you'll receive a tax credit which cancels out your UK liability, but no more than that.  If it's more than you've already paid in Australia, you'll be charged the extra.

Obviously if that's the way it works, you can't possibly get a tax credit unless you're actually paying tax in your new country.

Like I said, that's how I always understood it, but I could have the wrong end of the stick. I'll be interested to know how it works. 

Your explanation is also my understanding of how it works, and not the way described in the article. Although one would still pay the same amount of tax regardless because you'll be accountable to the tax regime in your country of residence, and not Australia's.

My thinking, and apologies if this sounds simplistic, is that by renting out your primary residence you'd convert a tax-free asset into a taxable income stream. Unless you were residing in a low-tax country in the meantime or had virtually no income, you're going to end up paying tax on mortgage repayments by a third party. I appreciate there are significant costs in buying and selling property, and also the possibility of price increases that might affect a person's ability to purchase on their return to Australia, so it's never going to be a straightforward decision.

[Marisawright]

14 minutes ago, InnerVoice said:

Your explanation is also my understanding of how it works, and not the way described in the article. Although one would still pay the same amount of tax regardless because you'll be accountable to the tax regime in your country of residence, and not Australia's.

I don't see how you'd still pay the same tax regardless, if it worked the way it said in the article.  You'd get your 32.5% Australian tax back, and then might be taxed only 15% in your new country of residence.

Whereas if it works the way I think it works, you'd pay the full Australian 32.5% but would be unlikely to get charged any additional tax by your new country.

[rammygirl]

Worth investing in an accountant that is licensed in both countries.

We rented our Australian house while living in UK. The ATO tax income arising in Aus by their rules and rental income has many possible deductions (this is where an accountant can actually save you money) the final net amount is then taxed at the higher rate - all of it no nil rate band. 
Then HMRC assesses the same income by their (less favourable rules) we did have a bit extra to pay. If you paid more to Aus than they assessed as owing that amount cannot be offset against general income in the UK as it can in Aus. So you only get a rebate if you have rental income arising in the UK.

This is as I remember it although rules may well have changed but the UK still has less favourable deductibles and no general offset like the ATO allow.

[InnerVoice]

1 hour ago, rammygirl said:

Worth investing in an accountant that is licensed in both countries.

We rented our Australian house while living in UK. The ATO tax income arising in Aus by their rules and rental income has many possible deductions (this is where an accountant can actually save you money) the final net amount is then taxed at the higher rate - all of it no nil rate band. 
Then HMRC assesses the same income by their (less favourable rules) we did have a bit extra to pay. If you paid more to Aus than they assessed as owing that amount cannot be offset against general income in the UK as it can in Aus. So you only get a rebate if you have rental income arising in the UK.

This is as I remember it although rules may well have changed but the UK still has less favourable deductibles and no general offset like the ATO allow.

Thanks for the clarification. If you don't mind me asking how long did you live in the UK for, and do you think it was a good decision? In hindsight do you think you'd have been better off selling your Australian property, investing the money, and then buying a new home on your return? I assume you were renting while you living in the UK, so your Australian home remained your primary residence throughout?

[rammygirl]

1 hour ago, InnerVoice said:

Thanks for the clarification. If you don't mind me asking how long did you live in the UK for, and do you think it was a good decision? In hindsight do you think you'd have been better off selling your Australian property, investing the money, and then buying a new home on your return? I assume you were renting while you living in the UK, so your Australian home remained your primary residence throughout?

Our situation was different we moved back to the UK having sold there and rented in Aus. We regretted it and decided to buy a plot of land we had seen in Aus anyway. Buying from the UK via FIRB (our provisional visa was cancelled). We built a house there that we would eventually live in (all being well visa wise) and rented it out whilst living in UK in our new PPR. After 7 years we returned to Australia selling our UK home and after a few years renting finally moved into the house we built. 
This is now our PPR but if we sell I believe the time it was rented May be subject to capital gains.

The Australian home was financially worth doing as it wasn’t mortgaged so was a positive income stream and has had excellent capital growth. 

Edited May 13, 2023 by rammygirl

[InnerVoice]

2 hours ago, rammygirl said:

Our situation was different we moved back to the UK having sold there and rented in Aus. We regretted it and decided to buy a plot of land we had seen in Aus anyway. Buying from the UK via FIRB (our provisional visa was cancelled). We built a house there that we would eventually live in (all being well visa wise) and rented it out whilst living in UK in our new PPR. After 7 years we returned to Australia selling our UK home and after a few years renting finally moved into the house we built. 
This is now our PPR but if we sell I believe the time it was rented May be subject to capital gains.

The Australian home was financially worth doing as it wasn’t mortgaged so was a positive income stream and has had excellent capital growth. 

That's interesting, and highlights how different everyone's circumstances are. I think it's highly likely that we will return to Australia but we don't want to spend the rest of our lives in Cairns, so selling our current property seems to make sense. It also means that we don't need to worry about it getting hit by a cyclone while we're overseas! What we need to decide is whether to buy our retirement property before we leave Australia (and rent it out), or invest the money wisely and hope that we can still afford to buy somewhere on our return.

[Alan Collett]

5 hours ago, rammygirl said:

Worth investing in an accountant that is licensed in both countries.

We rented our Australian house while living in UK. The ATO tax income arising in Aus by their rules and rental income has many possible deductions (this is where an accountant can actually save you money) the final net amount is then taxed at the higher rate - all of it no nil rate band. 
Then HMRC assesses the same income by their (less favourable rules) we did have a bit extra to pay. If you paid more to Aus than they assessed as owing that amount cannot be offset against general income in the UK as it can in Aus. So you only get a rebate if you have rental income arising in the UK.

This is as I remember it although rules may well have changed but the UK still has less favourable deductibles and no general offset like the ATO allow.

Remember that what is a deductible cost in Australia may not be deductible in the UK.

2 quick examples:

1.   Mortgage interest - allowed for as a tax credit at the basic rate only in the UK.

2.   Depreciation and the capital works deduction - available in Australia, likely not in the UK.

Best regards.

[InnerVoice]

On 12/05/2023 at 07:42, Ausvisitor said:

Our plan, but it is 20+ years away yet, is to keep the house in Aus, the UK and the one in Europe and just perpetually ping-pong around them all.

If we get it just right we might even end up not tax resident anywhere (although they'll still find a way to tax us)

Sounds idyllic spending the best parts of the year in Aus, UK, and Europe respectively, but unless you envisage living solely off savings, you're still going to be taxed on any income streams arising in those countries.

[ramot]

3 hours ago, InnerVoice said:

Sounds idyllic spending the best parts of the year in Aus, UK, and Europe respectively, but unless you envisage living solely off savings, you're still going to be taxed on any income streams arising in those countries.

We seriously considered living between UK and Australia when we retired 20 years ago. We already had properties in both UK and Australia. 

I was the one who decided against it, I had already lived between Brunei and England for 10 years, coping with never feeling really settled in either, and needed to feel one place was going to be home. The other reality was the necessity of renting out the main property while in the other country, then deciding to give the good tenants notice in either country when we wanted to move either way, to then have to find new tenants every 6 months. For us it didn’t make sense to do that. 

So we kept tenants in place in our UK properties, made our Australia our home, had house sitters,  and rented in England as we have visited for about 3 months almost every year.since. It’s far less disruptive, we kept good tenants and the regular income.

We do advise using good accountants.

 

[InnerVoice]

14 hours ago, ramot said:

We seriously considered living between UK and Australia when we retired 20 years ago. We already had properties in both UK and Australia. 

I was the one who decided against it, I had already lived between Brunei and England for 10 years, coping with never feeling really settled in either, and needed to feel one place was going to be home. The other reality was the necessity of renting out the main property while in the other country, then deciding to give the good tenants notice in either country when we wanted to move either way, to then have to find new tenants every 6 months. For us it didn’t make sense to do that. 

So we kept tenants in place in our UK properties, made our Australia our home, had house sitters,  and rented in England as we have visited for about 3 months almost every year since. It’s far less disruptive, we kept good tenants and the regular income.

We do advise using good accountants.

That makes far more sense than maintaining two homes in separate countries, which you either have to keep renting out or leave unoccupied for long periods of time, which is also problematic given the possibility of break-ins, squatters etc. I assume the 3 months you visit are the summer months? I can't imagine wanting to be there at any other time, apart from Christmas. As a matter of interest, what do you do with your house in Australia during those 3 months, and do you ever have problems renting somewhere in the UK for such a short period of time?

[Marisawright]

16 hours ago, ramot said:

I was the one who decided against it, I had already lived between Brunei and England for 10 years, coping with never feeling really settled in either, and needed to feel one place was going to be home. The other reality was the necessity of renting out the main property while in the other country, then deciding to give the good tenants notice in either country when we wanted to move either way, to then have to find new tenants every 6 months.

I suppose these days, you'd put the properties on AirBnB. There are plenty of agencies now, who will handle AirBnB bookings, maintenance etc. for you. 

However, I don't think I'd want to do it either.   The result of @Ausvisitor's idea would be that all three of the houses wouldn't be homes, they'd be impersonal AirBnB rentals that I happen to own.  It wouldn't be worth getting my personal stuff out of storage for the three or four months I was in each one.  

I think, if I really wanted to live a nomadic retirement, I'd have 3 small apartments, not houses, and split my personal treasures between all three.  Then perhaps I could afford not to rent them out at all, and all three would feel like home.  Apartments would be more secure than a house if they're left empty for 3 or 4 months every year.

[ramot]

5 hours ago, InnerVoice said:

That makes far more sense than maintaining two homes in separate countries, which you either have to keep renting out or leave unoccupied for long periods of time, which is also problematic given the possibility of break-ins, squatters etc. I assume the 3 months you visit are the summer months? I can't imagine wanting to be there at any other time, apart from Christmas. As a matter of interest, what do you do with your house in Australia during those 3 months, and do you ever have problems renting somewhere in the UK for such a short period of time?

We always had house sitters for here until last year, as we only went to England for 5 weeks, our son and wife came most weekends and we have good neighbours. We won’t be going so often now, and more likely for a shorter time.

Renting in England before Airbnb was almost impossible as most rents were for a minimum of 6 months. Airbnb and Stayz made such a difference. We rent mostly though Stayz, it’s very easy.

We don’t go in summer, we prefer Spring and Autumn. 

 

[InnerVoice]

18 minutes ago, ramot said:

We always had house sitters for here until last year, as we only went to England for 5 weeks, our son and wife came most weekends and we have good neighbours. We won’t be going so often now, and more likely for a shorter time.

Renting in England before Airbnb was almost impossible as most rents were for a minimum of 6 months. Airbnb and Stayz made such a difference. We rent mostly though Stayz, it’s very easy.

We don’t go in summer, we prefer Spring and Autumn. 

 

Stayz - I haven't heard of that one, I shall check it out.

Update: It seems to be called 'Vrbo' in the UK.

Edited May 14, 2023 by InnerVoice

[Ausvisitor]

11 hours ago, Marisawright said:

I suppose these days, you'd put the properties on AirBnB. There are plenty of agencies now, who will handle AirBnB bookings, maintenance etc. for you. 

However, I don't think I'd want to do it either.   The result of @Ausvisitor's idea would be that all three of the houses wouldn't be homes, they'd be impersonal AirBnB rentals that I happen to own.  It wouldn't be worth getting my personal stuff out of storage for the three or four months I was in each one.  

I think, if I really wanted to live a nomadic retirement, I'd have 3 small apartments, not houses, and split my personal treasures between all three.  Then perhaps I could afford not to rent them out at all, and all three would feel like home.  Apartments would be more secure than a house if they're left empty for 3 or 4 months every year.

I suppose some might do it that way, we won't we will leave the homes "ready to return to" and just lock up and leave.

Family could use the holiday property in Europe but there is no way we are renting out houses on airbnb

[Marisawright]

8 hours ago, Ausvisitor said:

I suppose some might do it that way, we won't we will leave the homes "ready to return to" and just lock up and leave.

Family could use the holiday property in Europe but there is no way we are renting out houses on airbnb

Even if I could afford it (which I couldn't), I can't imagine myself taking full advantage of this idea.  I think the novelty would wear off after the first two or three years.

I say that because in retirement, just relaxing wears off and you feel the need to "find your tribe" and reawaken the shared sense of purpose you had at work (and didn't even realise you'd miss).   If you're jumping from one place to another for three or four months at a time, you can't really become part of the community in any of them.  

I've got to the point, now, where it's very difficult to even think of holidays, because I'd miss so much of my usual activities. 

[ramot]

9 hours ago, Ausvisitor said:

I suppose some might do it that way, we won't we will leave the homes "ready to return to" and just lock up and leave.

Family could use the holiday property in Europe but there is no way we are renting out houses on airbnb

We wouldn’t rent out on Airbnb, but even though we are far from financially uncomfortable in our retirement, wouldn’t consider leaving 3 properties empty with only limited use. There would be concerns about the upkeep, possible insurance restrictions if empty? and as another poster mentioned, break ins, squatters.

When we were in Brunei, we bought a small easy to maintain terrace house in our old village, as all our 3 children were still in Uk, either at boarding school or university,  to have a base for them, and as  I was probably back about every 6 weeks, it made sense, until the older 2 were settled. We then bought a house in London for our daughter to live in while at University, rented out 2 rooms to other students, and since  she left, it has been rented out for about 20 years. The thought that we would leave any of our properties empty since we retired 20 years , never crossed our minds. The income is far better option, than worrying about empty costly to maintain hardly used properties,