Renting & tax?

[Guest Dennic]

Hi, we are wanting to rent out our house & flat in the UK when we move over to OZ but our big question is, when we get the monthly payments do we have to pay tax in OZ? Will it go down as income? We don't know much about OZ taxes and so on, so if anyone has done this/ knows about this then I would love any info

Denni

[Andrew from Vista Financial]

Hi, we are wanting to rent out our house & flat in the UK when we move over to OZ but our big question is, when we get the monthly payments do we have to pay tax in OZ? Will it go down as income? We don't know much about OZ taxes and so on, so if anyone has done this/ knows about this then I would love any info

Denni

 

 

Hi Denni

 

The all important question is what visa type will you be on?

 

Regards

 

Andy

[Guest Dennic]

Hi Andy,

we are going for the 175 visa, just got English test and medicals left to do once TRA have sent all the paperwork.

Denni

[Guest Dennic]

Sorry that is visa 176!

[srg73]

Good question, I would recommend Alan Collet on Pomz in Oz who is a tax expert and who I will be consulting. We are going for 175 so perminant residentcy which will has very different tax implications to temporary. We simply want the safety of our uk house, our mortgage is quite small and we have put a large amount of time restoring the house. The other issue we have is whether we could secure a good mortgage in Aus due to already holding one in Uk?

 

S

[Guest Dennic]

Thanks, that was one of the other things we want to know, if we can put the money down on paper for a new mortgage or if that will only be based on the in-come we get in OZ.

Anyway thanks for that I will pop on to that site and ask around.

If I find anything out I will keep you posted

Denni

[Andrew from Vista Financial]

I believe the 176 is a permanent visa, if so then the following applies:

 

UK

UK rental income will have to be declared via a UK tax return and the appropriate tax will be applied if applicable after taking personal allowances (http://www.hmrc.gov.uk/incometax/personal-allow.htm) and allowable deductions (management fees, mortgage interest etc) into account.

 

It is possible to have the UK rental income paid gross with no tax deducted along the way by completing form NRL1 (http://www.hmrc.gov.uk/cnr/nrl1.pdf).

 

 

Australia

Rental income will need to be declared and the appropriate costs can be deducted (mortgage interest, management fees etc) tax will then be levied according to the marginal tax rates that this income plus other taxable income puts you in.

 

However if tax has been paid in the UK on profit it should be possible to get a tax credit for this in Australia due to the dual tax agreement in place.

 

Essentially as a permanent resident worldwide income is taxable but you would not get doubly taxed on the same income.

 

If tax advice or preparation of lodgement for tax is required then as mentioned Alan Collet would be able to assist.

 

 

 

Regards the situation with a mortgage, there is no set answer to this.

 

All lenders have differing policy, some will allow income from overseas rental to be taken into account others will not.

 

Some will want the UK mortgage to be able to be serviced based on the Australia lenders rates others will take only the actual monthly payments into account.

 

An assessment of your individual circumstances would have to be undertaken to understand if you are in a position to get a mortgage and which lenders may be open to you.

 

Having a UK mortgage is certainly not something that will stop you getting a Australian mortgage.

 

 

Hope this helps, feel free to ask any further questions.

 

 

Regards

 

Andy

Edited April 7, 2012 by Andrew from Vista Financial

[Guest natmark]

Just a quick question. We're renting our house in the uk out (moving in 5 weeks). We've completed and had approved our NRL1 form. However, our monthly rent is to remain in our uk account to cover mortgage payment, landlord insurance, and a loan payment. So, none of this money will enter our Australian bank account. Do we still have to declare it?

[srg73]

Natmark ,I would guess yes as it will be classified as unearned income and therefore taxed at 40% uk the same as having 2 properties in uk. We are therefore planning on renting at say £1,000 per month which would be taxed at 40% leaving £600. Agent will want 15% of £1,000 leaving £450 to pay mortgage, insurance and repairs.......figures do not work!!! This will mean we will be about £150 out of pocket each month which is far better than most however is still another monthly bill

 

S

[Andrew from Vista Financial]

Natmark ,I would guess yes as it will be classified as unearned income and therefore taxed at 40% uk the same as having 2 properties in uk. We are therefore planning on renting at say £1,000 per month which would be taxed at 40% leaving £600. Agent will want 15% of £1,000 leaving £450 to pay mortgage, insurance and repairs.......figures do not work!!! This will mean we will be about £150 out of pocket each month which is far better than most however is still another monthly bill

 

S

 

 

 

Hi S

 

 

Where did you get this information from?

 

 

Income tax is payable based on marginal tax rates, regardless of whether it is rental income or employment income (the exception being minors).

 

 

Regards

 

 

Andy

[Andrew from Vista Financial]

Just a quick question. We're renting our house in the uk out (moving in 5 weeks). We've completed and had approved our NRL1 form. However, our monthly rent is to remain in our uk account to cover mortgage payment, landlord insurance, and a loan payment. So, none of this money will enter our Australian bank account. Do we still have to declare it?

 

 

Hi natmark

 

 

If you are permanent residents then yes all income and allowable expenses will have to be declared in Australia as well and tax will be levied on any profit at your marginal tax rates. If you have paid any tax in the UK you should get a tax credit in Australia for that.

 

 

For temporary residents UK rental income does not have to be declared in Australia.

 

 

Regards

 

Andy

[Guest Dennic]

Thank you Andy! 1 more question if you don't mind?

What are the chances of getting a mortgage from UK for OZ, we would like one set up for when we arrive but don't know if this is possible.

Denni

Edited April 7, 2012 by Dennic

[srg73]

Andrew, this is what I understand to be correct in the uk and therefore would apply if declaring the income to uk tax authorities. Regarding the Australian tax, I know nothing about this and your mention of a possible rebate would be very good news.

 

In simple terms what are the tax bands and do they include un-earned income? Mortgage rates are approx 200% uk rates, are they repayment only etc? What is the lending criteria? What sort of deposit? Would they consider uk property as collateral, we have circa $220,000 Aus equity. Pension transfer, savings, inheritance, etc etc etc etc.

 

So many questions.

 

Thanks. S

[Guest natmark]

Hi natmark

 

 

If you are permanent residents then yes all income and allowable expenses will have to be declared in Australia as well and tax will be levied on any profit at your marginal tax rates. If you have paid any tax in the UK you should get a tax credit in Australia for that.

 

 

For temporary residents UK rental income does not have to be declared in Australia.

 

 

Regards

 

Andy

 

Thanks for your reply Andrew. I do find the whole tax thing confusing!

 

We know we have to submit a self assessment tax return here in the UK but as our profit is likely to equal less (about £3500) than our (me and hubby) tax allowance we are unlikely to have to pay tax in the UK as far as I understand.

If we do declare this much in Oz what sort of rate of tax would we be expected to pay? My husband will be working and I will be a full time stay at home mum.

 

Sorry to bombard you with questions!

[Andrew from Vista Financial]

Thank you Andy! 1 more question if you don't mind?

What are the chances of getting a mortgage from UK for OZ, we would like one set up for when we arrive but don't know if this is possible.

Denni

 

Hi Denni

 

I can certainly do a pre-assessment of your situation to ascertain your ability to borrow and which lenders may be applicable for you given your circumstances, (UK property etc).

 

However if you will be using Australian sourced income to service the mortgage then generally this income will have to be in place before the mortgage can move to unconditional (full approval).

 

Happy for you to PM if you would like to take this further.

 

Regards

 

Andy

Edited April 10, 2012 by Andrew from Vista Financial

[Andrew from Vista Financial]

Andrew, this is what I understand to be correct in the uk and therefore would apply if declaring the income to uk tax authorities. Regarding the Australian tax, I know nothing about this and your mention of a possible rebate would be very good news.

 

In simple terms what are the tax bands and do they include un-earned income? Mortgage rates are approx 200% uk rates, are they repayment only etc? What is the lending criteria? What sort of deposit? Would they consider uk property as collateral, we have circa $220,000 Aus equity. Pension transfer, savings, inheritance, etc etc etc etc.

 

So many questions.

 

Thanks. S

 

Hi S

 

Just coming back to you on your UK rental income. I wonder if you are a higher rate tax payer already or on the brink and thus your rental income therefore is hit at the higher rate!!

 

Certainly of it's own accord UK rental income does not fall into the 40% tax bracket it will fall into the applicable tax thresholds of the appropriate tax year, the fact that it is un-earned will not affect this.

 

The tax thresholds for Australia can be found here http://www.ato.gov.au/individuals/content.aspx?doc=/content/12333.htm again no special treatment for adults in relation to whether the income is through gainful employment or rental etc.

 

Mortgages work pretty similarly to UK in terms of product, capital repayment or interest only can be available.

 

Deposit generally depends on visa type, i.e permanent residents currently require a minimum of between 5% - 10% depending on lender.

 

Temporary residents generally require a 20% deposit although it may be possible with only 10% in some very special cases.

 

UK property could not be used as security therefore it may be worth considering releasing equity prior to moving here for deposit purposes although you would need to be able to show that the mortgage in the UK can be serviced as well as the Australian mortgage.

 

That said you seem to have a good level of savings from the sounds of things although I do not understand the value of the property you might wish to purchase.

 

Pensions can be a complex area and taking solid advice on where these are best placed is advisable, try not to get too stressed about this as generally there is no major rush to act prior to leaving.

 

 

Regards

 

Andy

Edited April 10, 2012 by Andrew from Vista Financial

[Andrew from Vista Financial]

Thanks for your reply Andrew. I do find the whole tax thing confusing!

 

We know we have to submit a self assessment tax return here in the UK but as our profit is likely to equal less (about £3500) than our (me and hubby) tax allowance we are unlikely to have to pay tax in the UK as far as I understand.

If we do declare this much in Oz what sort of rate of tax would we be expected to pay? My husband will be working and I will be a full time stay at home mum.

 

Sorry to bombard you with questions!

 

 

Hi natmark

 

You are correct in your understanding of the UK income in that if it falls below your personal allowance limit and you have no other declarable UK income then you will not have to pay tax.

 

The treatment for the Australian end is that the income is added to all other assessable income then the allowable deductions are taken away, this will ascertain your taxable income.

 

The 0% tax bracket in Australia is being lifted to around $18,000 in July for the new financial year!!

 

Regards

 

Andy

[Alan Collett]

A quick note. Tax rates (including those from 01/07/2012) are on this factsheet:

http://www.gmtax.com.au/wp-content/uploads/downloads/2012/01/Climate-Change-Changes-to-Personal-Tax-Rates-from-1-July-2012.pdf

 

As Andy says, the tax free threshold steps up markedly from the start of next tax year, but the introduction of the carbon tax will increase the cost of gas, electricity, etc too ...

 

Best regards.