‘I want to in­vest in Aus­tralian buy-to-let’

The Daily Telegraph - Your Money - - MONEY MAKEOVER -

This reader faces a com­plex se­ries of choices. Amelia Mur­ray seeks ex­pert help

Jen­nifer Beck has some im­por­tant fi­nan­cial de­ci­sions to make – and needs to make them in the right or­der to min­imise tax and max­imise her in­come. Ms Beck, 44, came to Bri­tain from Aus­tralia 16 years ago when maths and sci­ence teach­ers were in short sup­ply. She re­cently gave up her per­ma­nent teach­ing job and £38,000 salary and is about to start work as a sup­ply teacher, which will pay be­tween £110 and £185 a day. She plans to re­turn to full-time work in Septem­ber 2017.

Ms Beck owns two buy-to-lets – a flat in Southend, Es­sex, and a con­verted sta­ble in nearby Leigh-on-Sea. She also owns her own home, a three-bed­room semi-de­tached house in Southend where she lives with her three-yearold daugh­ter, El­iz­a­beth. Each prop­erty is mort­gaged and her to­tal debt is £425,730; the re­pay­ments amount to £1,400 a month.

She es­ti­mates that the two buy-to­lets yield an an­nual in­come of £12,900 af­ter the mort­gage re­pay­ments. Ms Beck also makes £400 a month from a lodger. Main­te­nance pay­ments from El­iz­a­beth’s fa­ther, child tax cred­its and child ben­e­fit add up to about £9,900 a year.

She has £6,000 of credit card debt, which she plans to pay off next month when the 0pc deal ex­pires.

Her buy-to-let flat is cur­rently on the mar­ket for £170,000. She bought it in 2012 for £115,000 and hopes to sell it in Oc­to­ber, when the fixed-rate mort­gage comes to an end. She wants to know how much cap­i­tal gains tax she will have to pay.

Ms Beck wants to use the pro­ceeds to pur­chase a buy-to-let prop­erty in Aus­tralia to “put some roots down” and give her and her daugh­ter the op­tion of mov­ing back in the fu­ture. She may also sell her own home, which she bought as a buy-to-let in 2008 for £175,000 and moved into last year. If Ms Beck bought a A$450,000 prop­erty in Bal­larat, Vic­to­ria, she would pay about A$20,000 in gov­ern­ment fees and stamp duty.

If she moves to Aus­tralia she should con­sider whether to sell her UK prop­erty be­fore de­par­ture. As an Aus­tralian res­i­dent she will be sub­ject to Aus­tralian tax on her world­wide in­come and gains.

Any gain on sale of an Aus­tralian prop­erty will be taxed at the point of dis­posal. Typ­i­cally a qual­i­fy­ing pri­vate res­i­dence will be ex­empt from cap­i­tal gains tax, but in­vest­ment and rental prop­er­ties may be sub­ject to tax. Var­i­ous ex­emp­tions ex­ist de­pend­ing on the spe­cific facts and own­er­ship pe­riod. In­come and gains are taxed at pro­gres­sive rates from 0pc to 45pc, de­pend­ing on other in­come in the tax year.

If Ms Beck is sub­ject to a higher tax rate in Aus­tralia than the UK rate on her gains, the higher Aus­tralian tax will rep­re­sent an ad­di­tional cost. It may there­fore be bet­ter to dis­pose of the prop­er­ties be­fore be­com­ing an Aus­tralian tax res­i­dent.

UK prop­erty held by non-UK res­i­dents re­mains sub­ject to UK tax, so Ms Beck may suf­fer both UK and Aus­tralian tax on the dis­posal of the prop­er­ties once she be­comes non-UK tax res­i­dent. Ms Beck lived in one of the prop­er­ties for a pe­riod as her

‘In my view, Ms Beck is over­ex­posed to prop­erty’

prin­ci­pal res­i­dence. There­fore part of the gain re­lat­ing to this pe­riod should be ex­empt from UK (and pos­si­ble Aus­tralian) tax. Other al­lowances may also be avail­able, such as let­tings re­lief, which ap­plies if you let out some or all of your prin­ci­pal pri­vate res­i­dence.

Once Ms Beck be­comes a non-UK res­i­dent, the rental in­come from the prop­er­ties will be sub­ject to a spe­cial regime known as the non-res­i­dent land­lord regime.

Ms Beck will need to re­quest per­mis­sion from HMRC to re­ceive any rent with­out de­duc­tion of tax at source. Oth­er­wise her ten­ant or agent will be re­quired to deduct tax at the ba­sic rate from her rental in­come and pay it to HMRC. If gross pay­ment sta­tus is granted she will need to pay tax via a UK tax re­turn.

Re­lief may be avail­able un­der the UK-Aus­tralian tax treaty to en­sure that Ms Beck does not suf­fer tax twice on the same in­come or gains.

Ms Beck is cur­rently Aus­tralian domi­ciled and should also con­sider her in­her­i­tance tax po­si­tion. Af­ter 17 years in the UK she will be­come deemed UK domi­ciled and will be sub­ject to UK IHT at up to 40pc on her world­wide as­sets.

There is no in­her­i­tance tax in Aus­tralia. In­stead the cap­i­tal gains tax regime deals with tax in pro­bate and there are var­i­ous ex­emp­tions avail­able.

Jen­nifer Beck has two buy-to-lets and her own home in Bri­tain. She needs to avoid pay­ing tax twice

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