Hi,

I'm looking to move to Oz in the near future and want to understand if there are any benefical tax offsets etc if the rent you get from your UK home is less that the UK Mortgage your paying.

I don't want to sell the house in case things don't work out, plus the market's a bit uncertain at the moment anyway.

Hi Karl,

First you didnt say what type of visa you will have when you go to Oz. This is important because if you will be here as a temporary 347 visa holder, you will not have to declare UK rental income to the Australian Taxation Office (ATO).

Either way (permanent or temporary) you will have to declare any rental PROFIT to the Inland Revenue. Obviously if you are renting at a loss (mortgage and expenses is greater than rental income) then you will not pay any tax in the UK. Also bear in mind that you will still be entitled to your personal allowance, so even if you do receive a profit on your rental income you would have to receive in excess of 400 pounds per month PROFIT before you would have to pay any tax.

Now as for Oz. If you are coming as a temporary resident you do not (anymore) have to declare overseas rental income to the ATO. If you are a Permanent Resident you WILL have to declare it in Oz as well as the UK. The problem here is that while you may not have had to pay tax on it in the UK (due to your UK Personal allowance), it will become taxable here in Oz as your Oz tax free limit will have been used up by your Australian income. So potentially you might end up paying tax at 42% on this amount (dependent on how much you earn here). So 4000 pounds profit becomes $10,000 of income here that you would end up paying $4,200 worth of tax on here in Oz. You will not be entitled to a credit either because you did not pay any tax in the UK !

So the question you have to ask yourself is, is it really worth keeping the house, having the hassle of managing a rental agent from 10,000 miles away and not being able to see what is going on in your house (the agent won't care - they just want their cut of the rental income), and then having to pay tax in Oz.

Another thing to think about is if you are coming out on a permanent visa, then not having a house to come back to might make you work at life in Oz a little harder and longer before throwing in the towel and running back to the UK. If you are unsure as to whether you would like living in Oz then perhaps you should make a preliminary visit and have a good look around to see what you think. And dont just go to the tourist spots either - go to the residential areas of your chosen area and see what houses are like.

As for benefical tax offsets, this would not be an issue in Oz as your rental income would effectively be zero. In the UK if you had a loss for a particular year then I think you can carry that loss forward to the next year which might mean that you pay less tax (or no tax) the following year.

I should say that I am NOT a financial expert - my thoughts are based on personal experience and having been in a similar position ourselves.

Sorry for ranting on a bit ! Oz is a great place !

Hi colin,

Thanks for the feedback, I would be on a business sponsored temp visa 457. We would sell but the housing market uncertainty means it may not be the best time at the moment. We've got a good rental agent, who we've renting from before so that will take the hassle out of things.

I guess I'll just have to push for LAFH when I have my discussion with the company I may work for.

I saw on another thread you mentioned something about a 9% superannuation, could you explain what that is. Is that something on top of the tax you pay on your salary.

Thanks

Karl

Hi Karl,

Good agent or not, you tenants might not be so good ! I would stronglt reccomend that you arrange a power of attorney with a family member or friend so that they can act swiftly on your behalf should things turn sour !

Here in Oz it is a legal requirement for all employers to pay at least 9% of your gross salary into a super (or pension) fund. Additional personal contributions are optional.

Sometimes salary's are expressed as xx,000 dollars inclusive of super. If super is INCLUSIVE then you will have to take off the super amount to discover your actual gross taxable salary.

Should you chose to return to the UK then you can take the money in your super fund when you leave.

Hi Colin,

I noted ...

"Either way (permanent or temporary) you will have to declare any rental PROFIT to the Inland Revenue. Obviously if you are renting at a loss (mortgage and expenses is greater than rental income) then you will not pay any tax in the UK"

do you know if this is correct?

I had been led to believe that any mortgage repayments did not qualify as a cost which could be offset against rental income.

Karl -

Be aware that any above board letting agent will ensure that you have registered with HMRC - ours has just supplied us with form NRL6 to complete. You can apply not to have tax deducted from income at source (via agent) via form NRL1 - but as per Karl's comment I'm not yet clear if this is a good or bad thing (i.e. is it possible/better to make use of tax allowance in UK?) - of course it would still mean losing it and then claiming back via a UK tax return.

Mortgage repayments do qualify but payments to endownment policies secured against the property do not qulaify.

We had our mortgage payments paid to us gross. If you chose to have the payments made NETT of tax then I think this would only complicate things as you would still have to declare your rental income in the UK (assuming you will be a permanent resident) and then would have to declare a tax credit in Oz for the tax you paid in the UK !

so just to ensure i understand ...

• you mean that you have chosen to have uk rental income paid gross?, i.e. by filling out NR1
  
• in your australian tax return you declare income but also here you can offset mortgage payments as a cost?
  

Does this not mean that you miss out on UK tax allowance? Or do the double taxation laws mean you don't get this anyway?

Thanks again.

You can offset mortgage interest as an allowable expense/deduction in the UK and in Australia. The capital element of such payments does not reduce the taxable amount.

The UK personal allowance reduces the amount of any net rental income computed under UK tax laws that is subject to UK income tax. It does not reduce the amount of the assessable sum in Australia - you have to look at the two entirely separately, assuming of course the overseas rental income is indeed assessable in Australia. If you hold an Australian temporary residency visa that might not in fact be so.

Best regards.

PS. Please feel able to send me a Private Message or email if you think you may need assistance with personal Tax Returns (in the UK or Australia).

quote:

Originally posted by Boddle:
so just to ensure i understand ...

• you mean that you have chosen to have uk rental income paid gross?, i.e. by filling out NR1
  
• in your australian tax return you declare income but also here you can offset mortgage payments as a cost?
  

Does this not mean that you miss out on UK tax allowance? Or do the double taxation laws mean you don't get this anyway?

Thanks again.

We no longer have a property in the UK. However when we did we had our rental income paid gross - no tax deducted. We then lodged a UK tax return in which we delcared the total rental income less any acceptable expenses (mortgage repayments, house insurance, repairs etc). We were still able to claim a UK personal allowance and so we paid nil tax in the UK as the total rental profit was less than the personal allowance. It was all in my wifes name also as she owned the property - not me !

However in Oz we had to declare a dollar equivalent amount for the profit in the UK. This was then taxed in my wifes Oz tax return. As she was also working here here in Oz her tax free income was already used up so we paid Oz tax on the rental income profit.

As we had not paid any tax in the UK we could not claim a tax credit. So we were taxed on the income but only in one country !

Hi,

Since I first started this thread, we are in the process of starting our tax forms. You can offset your interest component. We have decided that getting tax advice to ensure we make the most of the rules is the best bet, so i'll post more once we done the forms, etc.

Karl

quote:

Originally posted by karlD:
Hi,

Since I first started this thread, we are in the process of starting our tax forms. You can offset your interest component. We have decided that getting tax advice to ensure we make the most of the rules is the best bet, so i'll post more once we done the forms, etc.

Karl

Karl, I am doing the same thing. My mortgage is £1150 per month but my rental income will only be £750 per month minus Agency fees. I have personally vetted and approved the new tenants and am happy that as a young professional couple on a long lease that I should be ok.
I will need a Form NRL1 to give to the Agency just so that they do not automatically take tax off. Apparently its fairly easy to do this. I am also coming out on a 457 by the way and so will be a non residential landlord.