Capital Gains Tax and UK rental income...

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Capital Gains Tax and UK rental income...


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Old 4th February 2010, 01:21 PM
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Default Capital Gains Tax and UK rental income...

Hi everyone...

First of all a big thanks to those people who have been helping with answering my first batch of questions!!!!

I now move onto the more difficult area of taaaaaaax!!!!

I have run a search on CGT and read the various threads and just wanted to check to see if I am correct in my assumptions!! I will be speaking to a specialist tax advisor at some stage but I always think it's a good idea to have done some research before hand so you can ask the right types of questions.

I have two rental properties in the UK which generate approximately 13,000 p/a and I have around 100,000 tied up in capital gains.

Having read the threads I am now thinking that....

- I will need to register as an Non Resident Landlord.
- I/we (the wife as is in joint names) can keep our UK tax fee allowance of
6,475 each which means the 13,000 will be pretty much tax free.
- Both properties will need to be valued at the time of our departure and this
figure will be used for any future CGT liability in Australia.
- Should we keep the property for 5 years of more, there will be no CGT liability
in the UK.
- Any increase in the value of the property in this period will be liable to CGT in
Australia.
- CGT Australia is worked out by taxing just 50% of the gain in with ones'
normal declared income.
- I will be required to complete a tax return in both the UK and Australia.

Does the 13,000 rental income get lumped in with any other earnings in Australia and this then gets taxed as normal?

I'm not a great fan of letting agents and would be looking at asking a friend to 'manage' the properties. Would be keeping a UK account open with some funds available for any necessary repairs.......! How have those of you who do something similar found things?

Anyone recommend any good tax advisors who specialise in this area....I much prefer to go by personal recommendation where possible....!

Thanks very much in advance.

Cheers
Spencer


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Old 4th February 2010, 07:39 PM
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Hi Spencer,

We used Geraint Davies at Montfort International in the UK and were very pleased with his services. As well as being useful for advice with rental properties they helped us move over our pensions and we have a massive folder of advice (which we still refer to occasionally). They also set us up with a financial advisor in Australia although I think we've outgrown him now (he only tells us about pensions whereas there is a lot more to financial advice than simply pensions).

Our letting agents had to be registered to operate the Non Resident Landlords (NRL) scheme too and legally they had to deduct tax (I think 11% at that time) until we were registered as NRL.
HM Revenue & Customs: The Non-resident Landlords Scheme

I can't remember about the CGT when you sell after 5 years but the rest seems to agree with what I know.

When you do the tax returns in the UK we pay the tax (if there is any) there and then that is declared in our Australian tax return here but we don't pay tax on it again.

We have a UK bank account, the letting agents pay the rental into there and the mortgages are paid from there and we have an agreement with the agents that they can arrange for repairs / maintenance up to a set amount and simply deduct it from the rent.

We've been out here for 2.5 years and it's been working well apart from the UK government adding more red tape . You may find that some banks will only deal with you when you have a UK address. We are considering moving to an offshore bank account but as yet are not sure if that will cause any complications.

Regards,
Karen

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Old 5th February 2010, 06:46 AM
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Hello Spencer.

A couple of points:

"Should we keep the property for 5 years of more, there will be no CGT liability
in the UK. "

CGT in the UK is no longer relevant once you enter a UK tax year in which you are never resident and ordinarily resident in the UK => if you departed the UK today to live in Australia UK CGT ceases to be applicable from 06/04/2010.

Also (as a broad comment), there is a CGT exemption in Australia if a former main residence (which can be in the UK) is let, and you do not have another ownership interest in property.

Best regards.

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Old 5th February 2010, 06:49 AM
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PS. The 50% CGT discount only applies if you retain a CGT asset for more than 12 months following your arrival in Australia.

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Old 10th February 2010, 03:34 PM
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Thanks very much for your responses which have helped clear things up. I am, however, still a little confused as to the exact position with regards to the CGT liability.....

If I let out a property (not my main residence) and move back to Australia, do I have to wait five years before I can sell it to avoid the CGT in the UK.....or.....could I sell all my properties and move back to Australia and so long as I remained a non UK resident for five years or more there would be no CGT liability?

Ideally I would like to do the latter and thereby have a much bigger lump some to take with me to Oz as oppossed to having to just have the equity from my main residence and have to wait the five years before being able to realise the equity from the rental properties.

This really is a rather complicated area for me to get my head around but I'm actually enjoying the research.....must be a bloody masochist!!!

Thanks in advance as always...

Spencer

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Old 10th February 2010, 10:34 PM
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Hello again Spencer.

If these issues are important I recommend taking some professional advice and/or discussing your issues with a competent tax advisor.

Best regards.

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Old 11th February 2010, 03:32 AM
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I agree with Alan that you should seek professional advice since I can only say what applied to us and we were always going to rent out our properties in the UK.

If you keep the properties in the UK you need to get them valued close to when you leave since the CGT will be on the value from when you left the UK to the value when you sold it. So it you bought a property for 100,000 GBP and when you left the UK it was worth 125,000 GBP you would only pay CGT on the difference between 125,000 GBP and the sale price not the original price you bought it at.

Regards,
Karen

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