Taxpayers who move between the UK and Australia, or are resident in one country and own a rental property in the other country, often make the mistake of assuming either that:
- Their rental income is only taxed in the country it is located or
- That the deductible expenses are the same in both countries
It’s a dangerous mistake to make and can result in a costly back-tax catch-up exercise, coupled with late penalties and interest.
Quite apart from the differing tax years: UK is 6 April to 5 April, while Australia is 1 July to 30 June, the UK is very much less generous with its rental property deductions:
- Mortgage interest is not deductible from the rental profit, but is instead claimable as a maximum 20% tax offset,
- Capital Allowances and Capital Works are not deductible and
- Property Losses may only be used against Property Profits on what the UK deems to be the same “rental property business”
If you are a non-UK national only moving to the UK for a short-period of time, there may be some options available to save facing the additional tax on your Australian properties, but this requires some planning and not all options are right for every taxpayer.
It is always worth taking advice from a UK-Australian international tax specialist before moving countries or acquiring a new property asset outside your country of residence, but if you are already in that situation, there are things your Fairway Team can do to help too; just get in touch and we’d be happy to help.
Note too that the consequences of the sale of properties can also be complex in these situations and knowing the tax position before you make the decision to sell, and whether there are any actions you can take to reduce your tax exposure can save a lot of heartache on what for many people is their most valuable asset.
