If you are moving to Australia and will be letting a property in the UK there are some important tax planning and compliance issues to consider.
HM Revenue & Customs in the UK will have some interest in what you are doing and you must take care to jump over all the necessary barriers – if you don’t you might be subject to interest and penalties.
Similarly, once you have become a tax resident of Australia the Australian Taxation Office will require you to include details of your UK let property income on your Australian Tax Return – unless you are a temporary tax resident of Australia when income from your UK rental property is not taxable in Australia.
In the UK
A surplus of UK property rental income over allowable rental expenses will be taxable in the UK, even if you are not a tax resident of the UK.
Furthermore, once you leave the UK to live abroad your tenant (if you have not appointed a letting agent) or the letting agent (if you have) is required to deduct income tax at the basic rate from your rental income less the allowable expenses, and must pay this to HM Revenue.
However, you can apply to HM Revenue for approval for your property income to be paid to you without tax being deducted under the Non Resident Landlord (NRL) scheme.
You will be expected to submit a UK Tax Return each year, even if the rental expenses exceed the rental income.
Allowable rental expenses include mortgage interest (not capital), and you can usually expect to be entitled to the UK personal allowance, x 2 if the property is owned by a couple who are now living in Australia.
The personal allowance often absorbs most if not all of the surplus rental income, meaning that little if any tax is payable to HM Revenue in the UK.
Once you become tax resident in Australia most taxpayers – save for temporary visa holders, as discussed above – become chargeable to tax on their worldwide income and capital gains.
As a result, you should plan to include details of your UK property income on your Australian Tax Return, with the net income forming part of your income that is taxable in Australia.
You will be given credit for any tax you have paid in the UK when computing the balance of tax that you have to pay in Australia.
The capital gains tax position in the UK upon the sale of a residential property while not resident in the UK is discussed in our earlier blog.
Capital gains tax in Australia may also need to be considered when selling a UK property as a tax resident of Australia.
bdh Tax is experienced in handling income tax and capital gains tax in the UK and in Australia.
If you have a property in the UK that you are considering letting or that is already being let and would like to discuss your situation with us please complete the enquiry form on this webpage, or telephone the bdh Tax office that is closest to you.
We will be pleased to have an initial free discussion about your situation, how we might help, and to advise our fees if you decide to instruct us.