UK Property Investment from Australia
Are you keeping your UK property even after moving to Australia ?
The Tax implications when considering this, are worth looking into carefully.
You may have heard about the Negative Gearing on investment properties in Australia, where any rental losses are set against other normal income, to reduce a taxpayers Taxable Income, and therefore cut down the tax paid.
You may also consider doing the same with your UK property….A newspaper article stated that : Foreign property investors are claiming more than $200 million a year of negative gearing tax deductions.
If your property is located outside Australia, special rules apply to the deductibility of your rental property expenses.
- Rental income from overseas property – You must include rental income from overseas properties in your Australian tax return.
- Investing overseas – If you have paid tax on this income in another country, you can claim a foreign income tax offset in Australia
Rental income from an overseas property falls into the category of modified passive income.
You can only deduct expenses you incurred in relation to a category of foreign income against foreign income of the same category.
For example, deductible expenses on an overseas property can only be deducted against foreign rental income or other foreign modified passive income such as royalties and dividends.
If you make a net loss in modified passive income in an income year you can only offset it against modified passive income (including foreign rental income) derived in later years.
I am not an expert on this subject, although I have worked in an Accountants office doing Australian Tax returns, and I do advise you check this thoroughly with the ATO, or with a Tax Accountant that specialises in UK and Australian tax laws.
And remember, Tax Rules can change AT ANY TIME…
One change advised by Alan Collett in comments:
New foreign losses rules
Previously, deductions incurred in deriving foreign income were applied against assessable foreign income of the same class (of which there were four). Where the deductions exceeded the assessable foreign income of that class, the resulting foreign loss was quarantined from domestic income, and could only be applied against future income of that class.
For income years commencing on or after 1 July 2008, foreign losses will no longer be quarantined into separate classes, nor will they be quarantined from domestic assessable income. The distinction between what is foreign and what is domestic will be removed for the purposes of applying deductions and prior-year losses. That is, deductions and prior-year losses that are applied by a taxpayer to reduce their assessable income may include both a foreign and domestic component.
Assessability of rental income received by Australian resident from the United Kingdom
Rental income received by an Australian resident from property located in the UK is assessable under Australian Tax Laws.
However, the taxpayer is also entitled to a foreign income tax offset .