Are you moving to the UK and renting out your property in Australia?
Below we have covered some popular Australian and UK tax issues and questions that arise when becoming a non-resident landlord of Australia.
Will I be taxed on my Australian rental income in Australia?
Non-residents of Australia are generally taxed on income derived directly or indirectly from sources in Australia (subject to the interaction of a double tax agreement). As a result of this, when you are tax resident of the UK you can be subject to Australian tax on rental income derived from an Australian source.
Gross rental income will be included as assessable income in your Australian tax return. You will then be entitled to a deduction for tax-deductible expenses incurred from renting out your Australian property. Where your deductions exceed the rental income, that loss may be offset against your other taxable Australian sourced income, or carried forward to the following tax year. Where you have generated a profit, you will be subject to tax at 32.5 percent on the first $120,000 (AUD) of net income, and then rates ranging from 37 percent to 45 percent for the remaining income.
Will I be taxed on my Australian rental income in the UK?
As a resident of the UK you are normally liable to UK tax on your worldwide income and gains arising in the tax year. Therefore, your Australian rental income will normally be taxable in the UK.
However, where you are resident but non-domiciled in the UK, you can elect to be taxed in the UK on your UK income and gains alone, and pay UK tax on foreign income and gains only if these are remitted (brought) to the UK. This is known as the remittance basis of taxation. Electing to use the remittance basis however, means the loss of your tax-free personal allowances and capital gains tax exempt amount for the year the election is made. Therefore, if you are entitled to use the remittance basis, it is important to calculate the most tax efficient method of taxation.
Where you are taxed on an arising basis (worldwide income) and you’ve paid tax in Australia on your Australian property income, you may be entitled to a UK foreign tax credit.
Where a ‘UK resident’ has property income from Australia, the Australia-UK double tax treaty becomes relevant.
What expenses can I claim on my Australian property income in the UK?
If this is your first experience of being a landlord whilst resident of the UK, you may be unsure about what expenses are tax deductible. HMRC (UK equivalent to the ATO) provide that for an expense to be allowable for tax purposes, it should be incurred wholly and exclusively as a result of renting out your property. Typical expenses include building insurance, estate agent fees and utility bills (only if not reimbursed by tenants).
In some instances, what you assume are revenue expenses may in fact be ‘capital expenses’. For example, improving or upgrading something that was existing. Capital expenses are not allowable and cannot be claimed against rental income, however you might be able to set them against capital gains tax if you sell the property in the future. You should seek professional advice if you’re unsure on the tax treatment of your property expenses.
Unlike in Australia where mortgage interest is fully tax-deductible, since April 2020, you have no longer been able to deduct any mortgage expenses from taxable rental income whilst resident in the UK. Instead, mortgage interest is used as a tax reducer, where you receive a tax credit based on 20 percent of mortgage interest payments. For example, if you make mortgage interest payments of £5,000 per year, you will receive a tax credit of £1,000 to deduct from the liability incurred on your property income.
Will I receive my Australian personal allowance as resident of the UK?
If you are a non-resident for the full Australian income year (01 July to 30 June), you can’t claim the tax-free threshold. This means you pay tax on every dollar of taxable income you earn from Australia.
If however, you are an Australian resident for tax purposes during the income year, you will receive a part-year tax-free threshold. This may be relevant in your year of exit from Australia.
How do I file my UK self-assessment tax return?
As resident of the UK, when you are in receipt of overseas income it automatically places you into the UK self-assessment regime. The return will be used to calculate any UK tax liability arising from your Australian property income and any additional relevant income.
The tax return deadline in the UK is 31 January following the tax year end (31 October for paper returns). Automatic late filing penalties will apply after the deadlines have passed.
Ways in which you can file a UK tax return:
- Send your tax return by post
- Use commercial software
- Use HMRC online services
- Get help from a professional
How do I file my Australian tax return?
As non-resident of Australia, the due date for your tax return remains 31 October following the end of the tax year. Non-residents may obtain an extension to 15 May of the following year if they are registered with a tax agent, i.e. tax-year end 30 June 2022 would be due 15 May 2023.
Ways in which you can file an Australian tax return whilst overseas:
- Lodge your tax return online with MyTax
- Lodge your return by post
- Lodge your tax return with a registered tax agent
If you need advice or assistance with your UK or Australian tax obligations, we are here to help. Simply send us an email to arrange a free initial consultation.
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