Moving to the UK - sell or rent AUS house?

[Lammie]

After 20 years we've decided to return to the UK for what's likely to be a few years to support my father, who's just turned 83 and on his own. He's bright as a button mentally but struggling physically, and has just hung up his car keys. Not sure how much longer he'll be around to be honest, and I just want to be there for him at the end. My husband's on board as we always agreed we'd do it if the need arose, and he's a bit of a boffin who loves UK and European history. His parents in Brisbane are much younger and in good health so fortunately that isn't an issue, and the plan is to return to Australia once my dad is no longer with us. My husband is a lecturer and I'm a nurse, so we don't foresee any work issues once he's got his partner visa. Our son finished uni a couple of years ago and has a good job in Melbourne, a girlfriend, and is making a life for himself down there. He's also supportive of the move and is looking forward to visiting us once we're settled.

4 years ago we bought a place on the Sunny Coast, just before house prices went bananas. We still have quite a big mortgage which has got a lot bigger recently due to interest rates going up. We've had the property assessed and the rental income should just about cover the interest payments and all other expenses, but not the principal. We would need to convert to an interest-only mortgage so the house would be paying for itself while we're away, which is what my husband wants to do, but that means we'll need to rent the whole time we're living in the UK. I would prefer to sell the house as we should make a decent profit and then buy somewhere outright in the UK. I appreciate that we'd incur buying and selling costs but then we won't have to pay rent, deal with landlords, or worry about what's happening with our Aussie home in our absence. Given his flexibility over the whole situation I feel I should go with him on this one, but financially it doesn't make sense. Having only recently got on to the property ladder, I feel adversed at going back to paying rent.

This seems to be our only stumbling block at the moment, so I'm looking for some insight from anyone who's done similar and how it worked out for them.

All replies welcome and thanks in advance, L x

[Marisawright]

If you were only going to be away for 2 or 3 years, I'd say definitely do not sell, because of all the costs and inconvenience you'd face on your return. For one thing,  house prices will likely rise further while you're away, so you'll have to pay more for a similar house on your return (or settle for something smaller), PLUS there's stamp duty, solicitor costs, mortgage fees etc, and the cost of renting a holiday home for a few months while you search for a place to buy and then wait for settlement.  

However if there's a chance it'll be a long stay, or potentially a permanent one, then selling may make more sense. Did that assessment take account of your 'foreign investor' status?   Once you've moved overseas, you get no tax-free threshold in Australia so you'll be taxed on every dollar of the rent.   If you decide to sell after you've moved overseas, you can't claim the "principal residence" exemption for CGT and you can't get the discount either.

We were in a similar position.  We decided to go overseas and we expected it would be for several years or permanently.  Having to pay 32% tax on the rental income and the prospect of being taxed 100% CGT if we sold, made selling seem like a no-brainer -- even though I've owned several rental properties over the years, and wasn't concerned about dealing with tenants (if your house is in a good neighbourhood, you get a good agent and you insist on approving tenants yourself, you're pretty safe). 

Anyhow, we sold up.  We had to delay our move for a few years and when we did finally move, we didn't settle.  We returned to Australia to find that we couldn't afford to buy anything remotely resembling our old home in Sydney.  We've ended up moving to Melbourne.  

Have you had a depreciation report done?  If it's a newer property then depreciation expenses can substantially reduce the tax liability.  

 

 

Edited July 5, 2023 by Marisawright

[Quoll]

We did it but our situation was rather different. We squatted in my parents' back bedroom and didn't work (care needs made it impossible) and lived off our Aussie super. We kept our home - fortunately because our son's relationship broke down and he lived in our home and took care of it. I'd say take advice from a tax expert especially if you will be working there. Will you want to return to the SC or, maybe if your son is settled in Vic might you prefer to be closer to him on your return? Certainly paying rent feels like lost money to me. However, I'm not sure I would recommend doing what we did, either, but when you have a couple of stubborn, vulnerable oldies you do what you've got to do.

And good luck! We lost mum at 92 and dad at 96!!! (Just to give you some Projection for your time frame! 

[Lammie]

Thank you both for sharing your stories. Wow, that's really old. You must have good genes!

My dad downsized to a two-bedroom bungalow after mum passed on and it's pretty small, so we won't be stopping with him except when we first arrive. I'd say he's got at least 5 good years left as he's in reasonably good health apart from his arthritis, has still got all his marbles, and maintains an active social life. Of course he might only last 2 or 3 year (you never know).

Our plan is to retire when we returned to Australia and yes, it would probably be on the SC. We definitely intend to downsize and hubs wants to hang on to the house because he thinks it'll be worth a lot more money by then, what with the Olympics happening and the new rail link from Brisbane. Then we can sell up, move into an apartment, and have some left over to fund our retirement. He's also a bit more attached to the house than I am having done some work on it himself, and partly working from home he's been able to enjoy it more than I have.

One thing you mentioned that I don't understand is that we would have to pay 32% tax on 'every dollar of rent'. I thought we'd only have to pay tax on whatever the profit was after deducting mortgage interest and other allowable expenses, which as I mentioned would pretty much reduce our net income to zero? We haven't done a depreciation report on the place yet (I don't know what that is, if I'm being honest). The house was built mid-90s.

[Marisawright]

37 minutes ago, Lammie said:

One thing you mentioned that I don't understand is that we would have to pay 32% tax on 'every dollar of rent'. I thought we'd only have to pay tax on whatever the profit was after deducting mortgage interest and other allowable expenses, which as I mentioned would pretty much reduce our net income to zero? We haven't done a depreciation report on the place yet (I don't know what that is, if I'm being honest). The house was built mid-90s.

You are right, you'd pay tax on your rental income after deducting expenses (including mortgage interest).  I agree you should speak to someone who knows about tax for foreign investors (because that's what you'll be while you're abroad, even if you're citizens).  

When you're leasing your house, you can't claim capital works, e.g. if you have to replace the oven, you can't claim the cost of the oven as an expense. Instead, what you do is claim 'depreciation' every year, which is an allowance against wear and tear of the building, fixtures and fittings.  

You may not get much depreciation on a 90s house unless you've done major renovations but I think a depreciation report is still worth doing.  You engage a valuer to assess today's value of the house and its fixtures and fittings, and the report tells you how much depreciation you can claim each year.  Note this is not money you've actually spent, it's a notional amount, but you still get to claim it as an expense.  

On a new building, the depreciation can be very high.  That's why investors often buy brand new buildings because they can claim so much in depreciation.  When I owned a couple of new apartments, I claimed so much depreciation that I paid no tax at all on the rent, and also got most of my PAYE tax refunded as well.  So it's well worth investigating so you can factor it in.

[rammygirl]

Also the income will be assessed in the Uk. Less generous deductions can mean extra to pay (they take into consideration tax paid to ATO) and losses cannot be offset against other income, no negative gearing in UK.

It still might be worth it though, we rented a house out in Aus whilst back in UK. So glad we did as we now love living back in it.

[ramot]

I’m not knowledgeable enough to give advice about renting out an Australian property, when living in UK, as I know things are set up differently for landlords here,  but we have done the reverse for the 20 years we have lived in Australia, and have rented out  UK properties. We don’t find it a problem at all, we use a management company, have insurance policies to cover anything that needs maintenance or  replacing,  it makes sense to keep properties in good condition. 

We use an accountant who is knowledgeable in both Australian and UK tax. and in our case, the rent has always covered the outgoings, and the properties have increased lots in value. It would be a good idea to contact Alan Collett about the tax implications.

If the rent you will receive leaves you very out of pocket then that is a serious consideration. You also have to think about how practical the property is to rent out. I live on the Sunshine Coast, and houses are still selling very quickly near me at ridiculous prices, and there is a big shortage of rental properties, and, as you mention ,  the Olympics are 10 years away, which probably won’t be a bad thing for future house prices. 

Not an easy decision, good luck

 

[InnerVoice]

We will be in a similar situation fairly soon as we intend to retire overseas for about 10 years, and have been considering whether to sell or rent our house out. We're pretty sure that we're going to sell the place because we live in Cairns, and we don't intend to move back here when we return to Australia.

I think getting professional tax advice is a very good idea because you will have all the facts laid out on the table, and it will also take away the emphasis of it being one person's decision over another. You didn't mention how much equity you have in the property, but I assume it's a significant amount If it's going to allow you to buy a property in the UK outright. Based on the fact that you will have very little income from the property, you're going to be relying solely on the capital appreciation in value while you're in the UK. I think if the property was in Sydney or Melbourne it might be worth the gamble, but the Sunshine Coast is a regional area where property prices haven't increased much until recently, and given the current economic climate it's unlikely that there will be further significant increases for quite some time. Of course, this is pure speculation on my part.

What isn't speculation is that if you don't sell your Australian home, you'll be renting in the UK. You didn't mention where your father was based, but unless it's a particularly cheap part of the country you're probably going to be looking at around £800/month rent, so there's 50 grand gone over the course of five years. Your home over here would need to have increased by nearly $100,000 to make it worthwhile. Then there are the other negative aspects of renting which you mentioned in your post.

Personally, I think selling the place is a bit of a no-brainer. Yes, you will incur buying and selling fees, but then you plan to downsize to a smaller property when you return to Australia, so really it's the cost of buying and selling the house in the UK that is the only additional cost. It's worth noting that there is now zero stamp duty on house purchases up to £250,000, and buying and selling our house in the UK is a much cheaper process than over here. When I sold my place over there in 2011 I used an on-line agent, and even with the solicitors fees the whole process cost less than £1,000. I think the biggest costs you'll incur will be shipping stuff backwards and forwards, and storing stuff over here (if you intend to do that).

Lots of big decisions ahead, but I'm sure your father will be very happy to have you over there!

[Blue Flu]

We have been considering similar outcomes when moving abroad. One thing for sure, if unable to keep an eye on your property, there is no guarantee others will. Same as finding a suitable tenant. A Mercedes driving, professional educated,  well turned out rent seeker, is not a guarantee that your property will not be used for illegal purposes. In fact where I live, I expect the likelihood more that it would be than not. 

The tax implications are something to consider as well outside of costs like council tax, water and agency fees. It's a hard one, as no one knows the future of Australian property which seems immune to date from interest rate increases , but the future is very debatable. 

One thing though, UK forecasts is suggestive of considerable increase in interest rates, with ever more experiencing difficulty. It may well be worth holding off purchasing in UK for now . Some forecasts are pointing at a 35% decline in house prices. If that bears fruit, I would seriously be looking to buy in that market. I'm looking now, but clearly not the time. 

As the NZ Wellington market has fallen considerably , it is very feasible the UK will dop so as well. I would have at one time thought the Australian would be the same, but this is clearly a market with a 'difference'. What should be and reality are at opposite polls. The question may be, is Australia of the future, a country one would want to live in? 

[Lammie]

Thanks to everyone for their helpful replies. Plenty of food for thought there. We shall definitely seek professional advice regarding tax as suggested, although it seems like selling is going to be our best bet financially.

We have the equivalent of £250k in equity so that should buy us something pretty reasonable near Worcester, where dad lives. I had a look on Rightmove and rents are around £800/month so that would be 50k down the plughole in 5 years, as was pointed out. I didn't know about zero stamp duty up to £250k so that's good to know because that happens to be our budget, and it's another point in favour of buying not renting.

Hard to know if there's going to be a property crash in the UK but from what I heard on the news recently they're doing a better job of getting inflation under control than Australia at the moment, so maybe not a huge concern.

Secretly I'm looking forward to moving back, reconnecting with old friends and familiar places, and enjoying some traditional British things I've missed out on over the years. However, we've been back every 4-5 years since we emigrated and witnessed the not-so-good changes that have taken place, so it's not all rose-tinted spectacles.

[Peach]

28 minutes ago, Lammie said:

what I heard on the news recently they're doing a better job of getting inflation under control than Australia at the moment, so maybe not a huge concern.

Wowee, UK inflation under control?

https://www.afr.com/policy/economy/jpmorgan-sees-risks-of-7pc-uk-rate-peak-hard-landing-20230706-p5dm27

https://www.theguardian.com/business/2023/jun/20/how-uk-inflation-compares-with-other-major-economies

https://www.cnbc.com/2023/07/04/uk-is-now-the-only-major-economy-where-inflation-is-still-rising.html

[Blue Flu]

1 hour ago, Lammie said:

Thanks to everyone for their helpful replies. Plenty of food for thought there. We shall definitely seek professional advice regarding tax as suggested, although it seems like selling is going to be our best bet financially.

We have the equivalent of £250k in equity so that should buy us something pretty reasonable near Worcester, where dad lives. I had a look on Rightmove and rents are around £800/month so that would be 50k down the plughole in 5 years, as was pointed out. I didn't know about zero stamp duty up to £250k so that's good to know because that happens to be our budget, and it's another point in favour of buying not renting.

Hard to know if there's going to be a property crash in the UK but from what I heard on the news recently they're doing a better job of getting inflation under control than Australia at the moment, so maybe not a huge concern.

Secretly I'm looking forward to moving back, reconnecting with old friends and familiar places, and enjoying some traditional British things I've missed out on over the years. However, we've been back every 4-5 years since we emigrated and witnessed the not-so-good changes that have taken place, so it's not all rose-tinted spectacles.

It is not that the UK is doing a better job, I mean there are serious issues there, but are being addressed more than in Australia. The recent 0.5% indicative of this. (taking UK rates to 5%) Another 0.5% is on the cards and interest rates in UK expected to rise to 6% or more. That is not indicative of much besides being aware they have a serious inflation problem, that needs to be tackled. 

Australia on the other hand , as usual in denial of the situation , has kept rates on hold. This is partly due to the Govenor of the RBA role up for re election in a couple of months , as well as massive pressure from the housing industry, which holds undue influence over policy in Australia , where any rise, is a rise too much. All it does is prolong the situation. 

But what is true is property is very over inflated in both countries, as well as others, and a correction of magnitude would be healthy all round. As for UK things will become more apparent later this year, with many hundreds of thousands finishing their present low mortgage payments and looking at payment interest rates of 6 or 7% . A hefty call for many, already struggling with cost of living increases. 

The UK government have rightly in my opinion, said they will not use tax payers money to shore up defaulters. Still interest only loans along with increased duration in years will help some. But whatever people are in for a tough time in UK. AS mentioned, I am watching the UK market closely , as find seeking an alternative Australian location to buy extremely hard work. 

 

[Jon the Hat]

17 hours ago, Blue Flu said:

It is not that the UK is doing a better job, I mean there are serious issues there, but are being addressed more than in Australia. The recent 0.5% indicative of this. (taking UK rates to 5%) Another 0.5% is on the cards and interest rates in UK expected to rise to 6% or more. That is not indicative of much besides being aware they have a serious inflation problem, that needs to be tackled. 

Australia on the other hand , as usual in denial of the situation , has kept rates on hold. This is partly due to the Govenor of the RBA role up for re election in a couple of months , as well as massive pressure from the housing industry, which holds undue influence over policy in Australia , where any rise, is a rise too much. All it does is prolong the situation. 

But what is true is property is very over inflated in both countries, as well as others, and a correction of magnitude would be healthy all round. As for UK things will become more apparent later this year, with many hundreds of thousands finishing their present low mortgage payments and looking at payment interest rates of 6 or 7% . A hefty call for many, already struggling with cost of living increases. 

The UK government have rightly in my opinion, said they will not use tax payers money to shore up defaulters. Still interest only loans along with increased duration in years will help some. But whatever people are in for a tough time in UK. AS mentioned, I am watching the UK market closely , as find seeking an alternative Australian location to buy extremely hard work. 

 

Increasing interest rates is not going to help inflation, it is the reason inflation is staying so high.  The sooner the banks forget their 1970s models and realise this the sooner we can get back to normal levels of inflation and growth.  They will cause recession in the UK and slowdown in Australia before that though I am sure.

[Blue Flu]

1 hour ago, Jon the Hat said:

Increasing interest rates is not going to help inflation, it is the reason inflation is staying so high.  The sooner the banks forget their 1970s models and realise this the sooner we can get back to normal levels of inflation and growth.  They will cause recession in the UK and slowdown in Australia before that though I am sure.

Not exactly. In fact rather the reverse. It was due to almost 'free' money that the inflated housing market arrived at the diabolical state it has. Interest rates are normally around 7% or thereabouts if looking at the historical rate. In fact rates were left low for far too long. 

It is true that this present crisis is compounded by other factors, than the reasons of the seventies inflation levels, but none the less it had to be tackled. One just needs to look at countries were inflation decimated the value of their currency and feeling of wealth within the population. 

There remains factors that will impact on RBA attempts that I have already suggested, outside of the mainstream reasons. But the fact is Australia will need to continue to raise rates, (too low at present) for additional purposes like not experiencing a considerable dollar decline. (among others) which will impact our trade , paid in US dollars.

 

[Lammie]

Thanks again for all the helpful advice previously. Here's a bit of an update since my original post for anyone interested.

In September we had our first trip back to the UK in seven years. We got lucky with the weather which was fab, as everyone had said what a rotten summer it'd been this year. We told them we'd brought the sun with us from Oz! It was great being back and see everyone, especially my father who I'd been worrying about. He's got carers coming in daily so I'm less concerned than before, but there'd been a big decline in his mobility since I last saw him. It was quite heart-breaking really, but that wasn't the only decline we saw if I'm being honest. The UK seems to be in a shocking state, with so many business closed down and homeless people everywhere. At times it was hard to believe we were back in England. Even my friends, who've always been such a very positive bunch, seemed fed up with a lot things since covid. The countryside was as beautiful as ever though, and we enjoyed some lovely walks and days out.

Despite having a few more doubts, our plan is still to move over there for a few years. We don't anticipate it being anywhere as long as we'd originally thought (2-3 years max) because I don't think my dad will manage too much longer before he needs to go into residential care. We discussed that with him and he said he wouldn't mind when the time comes, which was reassuring because we thought he might be resistant to the idea. That said, I'd like to spend some quality time with him before it comes to that. One thing that hubby and I now agree on is that we aren't going to sell our home here in Australia, so we're going to rent it out while we're away. I know it's probably going to cost us more money in the long run, but it will be reassuring to know that in future we'll be able to return to Australia without too many dramas.

The question I now have is whether we will be able to remain Australian resident for tax purposes because that's definitely going to work to our financial advantage when renting the house out? I did a bit of research on-line and it seems that if our permanent home or domicile remains in Australia then we would meet the 'Domicile Test', even though we would be resident in Australia for less than 183 days. In fact it seems quite difficult not to be classed as an Australian resident by the ATO unless you sell up and move overseas permanently.

I'm guessing at some point we'll need to speak to a tax professional, but any helpful thoughts in the meantime would be really appreciated. Ta in advance x

Edited November 8, 2023 by Lammie

[Blue Manna]

10 hours ago, Lammie said:

Thanks again for all the helpful advice previously. Here's a bit of an update since my original post for anyone interested.

In September we had our first trip back to the UK in seven years. We got lucky with the weather which was fab, as everyone had said what a rotten summer it'd been this year. We told them we'd brought the sun with us from Oz! It was great being back and see everyone, especially my father who I'd been worrying about. He's got carers coming in daily so I'm less concerned than before, but there'd been a big decline in his mobility since I last saw him. It was quite heart-breaking really, but that wasn't the only decline we saw if I'm being honest. The UK seems to be in a shocking state, with so many business closed down and homeless people everywhere. At times it was hard to believe we were back in England. Even my friends, who've always been such a very positive bunch, seemed fed up with a lot things since covid. The countryside was as beautiful as ever though, and we enjoyed some lovely walks and days out.

Despite having a few more doubts, our plan is still to move over there for a few years. We don't anticipate it being anywhere as long as we'd originally thought (2-3 years max) because I don't think my dad will manage too much longer before he needs to go into residential care. We discussed that with him and he said he wouldn't mind when the time comes, which was reassuring because we thought he might be resistant to the idea. That said, I'd like to spend some quality time with him before it comes to that. One thing that hubby and I now agree on is that we aren't going to sell our home here in Australia, so we're going to rent it out while we're away. I know it's probably going to cost us more money in the long run, but it will be reassuring to know that in future we'll be able to return to Australia without too many dramas.

The question I now have is whether we will be able to remain Australian resident for tax purposes because that's definitely going to work to our financial advantage when renting the house out? I did a bit of research on-line and it seems that if our permanent home or domicile remains in Australia then we would meet the 'Domicile Test', even though we would be resident in Australia for less than 183 days. In fact it seems quite difficult not to be classed as an Australian resident by the ATO unless you sell up and move overseas permanently.

I'm guessing at some point we'll need to speak to a tax professional, but any helpful thoughts in the meantime would be really appreciated. Ta in advance x

Do you have a permanent home if you are renting it out? Not being picky, just thought that could be something they object to?

[Blue Manna]

On 07/07/2023 at 04:07, Jon the Hat said:

Increasing interest rates is not going to help inflation, it is the reason inflation is staying so high.  The sooner the banks forget their 1970s models and realise this the sooner we can get back to normal levels of inflation and growth.  They will cause recession in the UK and slowdown in Australia before that though I am sure.

It's true that many things are different economically since the 70s. MMT, gold backed currencies, banking and central banks are all very different. But the underlying principles that increasing interest rates will slow investment, stall growth, lower demand, thus lowering inflation should hold, even though there will be a temporary increase in housing costs.

[Blue Manna]

4 hours ago, Blue Manna said:

It's true that many things are different economically since the 70s. MMT, gold backed currencies, consumer lending, banking and central banks are all very different. But the underlying principles that increasing interest rates will slow investment, stall growth, lower demand, thus lowering inflation should hold, even though there will be a temporary increase in housing costs.

 

[Lammie]

1 hour ago, Blue Manna said:

Do you have a permanent home if you are renting it out? Not being picky, just thought that could be something they object to?

It seems a bit vague but my understanding of domicile is that it's the place you'd normally consider to be home, or have a strong connection with. We own a property in Australia that is currently our home and we also have family ties here (our son and my husband's family), so that seems like a pretty strong connection. The question of domicile seems to have more to do with whether you're going to live permanently in the same place overseas than it does with what you do with your home while you're away.

[InnerVoice]

On 08/11/2023 at 20:22, Lammie said:

It seems a bit vague but my understanding of domicile is that it's the place you'd normally consider to be home, or have a strong connection with. We own a property in Australia that is currently our home and we also have family ties here (our son and my husband's family), so that seems like a pretty strong connection. The question of domicile seems to have more to do with whether you're going to live permanently in the same place overseas than it does with what you do with your home while you're away.

I don't know if this helps, but the ATO have a tool for determining your tax residency status when leaving Australia.

https://www.ato.gov.au/Calculators-and-tools/Work-out-your-tax-residency/#Gotothetool

It sounds like you'd still be an Australian resident for tax purposes because you'll be leaving Australia temporarily, and do not intend to set up a permanent home in another country.

[Alan Collett]

Consider the possibility of being tax resident in Australia and the UK under their domestic tax laws - which means you then need to look at Article 4 of the UK-Aus tax treaty.

Not for the faint hearted!  

Feel able to contact me if you would like to have an initial freebie chat.

Best regards.