Renting UK property from Australia - Personal name or Company and which is better?

[James]

Hi all, I've been searching the internet for days and have not been able to find any guidance on this matter. I've been granted a 190 visa (currently processing), so I will be a PR when I get to Australia. I've been wondering whether it's worth buying a property here in the UK in a company or personal name and renting it out whilst I'm in Australia. 

I understand that you get taxed here in the UK on the rent; however, as I won't be earning any income in the UK, I should get up to 12.5k tax-free (right?), and this would also apply in both a company and in my personal name. 

The trouble is figuring out which is the better option for the second tax in Australia (the double tax). Would it work better if the house was in a company or in my personal name? 

Has anyone had a similar problem? Or could someone guide me what sort of tax they pay if they own a house in their personal name (which is my preference) and rent this out? I think this would also relate to how much income you're making in Australia right?

 

Regards,

James

 

[Marisawright]

17 minutes ago, James said:

The trouble is figuring out which is the better option for the second tax in Australia (the double tax).

Maybe it will help if you understand that it's not a double tax.   The whole point of the 'double taxation agreement' between the UK and Australia is to PREVENT people paying double tax.  

The idea is that if you've already paid UK tax on something, then you won't have to pay Australian tax on it.   Of course it's not as simple as that, because the tax rates on things are different.

So for instance, let's say you've got income in the UK and you've paid UK tax on that income.  When you fill out your Australian tax return, you have to declare the UK income,  BUT you also declare how much UK tax you've already paid.  The ATO work out how much Australian tax you need to pay, BUT then they deduct the amount of UK tax you've already paid, and you only pay the difference.

 

 

 

[James]

16 minutes ago, Marisawright said:

Maybe it will help if you understand that it's not a double tax.   The whole point of the 'double taxation agreement' between the UK and Australia is to PREVENT people paying double tax.  

The idea is that if you've already paid UK tax on something, then you won't have to pay Australian tax on it.   Of course it's not as simple as that, because the tax rates on things are different.

So for instance, let's say you've got income in the UK and you've paid UK tax on that income.  When you fill out your Australian tax return, you have to declare the UK income,  BUT you also declare how much UK tax you've already paid.  The ATO work out how much Australian tax you need to pay, BUT then they deduct the amount of UK tax you've already paid, and you only pay the difference.

 

 

 

Hi Marisa,

 

Yes I understand the double tax agreement and the deductions paid from the UK tax towards the Aus taxation

[Marisawright]

25 minutes ago, James said:

Hi Marisa,

 

Yes I understand the double tax agreement and the deductions paid from the UK tax towards the Aus taxation

So you understand that you won't pay double tax, right?

[James]

Yes, as I said, deductions paid from UK tax towards Aus taxation

Edited June 20 by James

[Cheery Thistle]

There’s more to consider here than just tax. Consider the following: 
- if you buy in a Ltd Co you need to have accounts done annually by a CA. This has a cost attached to it
- mortgage providers to Ltd Co are generally more expensive and there is less choice 

- interest rates are generally higher 

- exit strategy - if you buy in personal name you pay capital gains (looks like this may go up soon) on any gain, if you buy in Ltd Co you pay corporation tax, plus your own personal dividend tax rate (it’s getting messy). 
 

I would ask why you want to buy in UK if you’re getting PR in Aus. 
The climate and taxation regime in the UK has become very anti-landlord. In Aus properties are expensive but you get considerably more allowances than in the UK. Food for thought. 

[Marisawright]

@James, the question is, what benefits would you expect from using a company instead of doing it personally?

I'm with Cheery Thistle:  unless you want to keep a foothold in the UK property market because you're planning to return one day, I can't see the benefit in buying in the UK.

[can1983]

I think there is a lot of presumption that using a company structure is a blag, saves lots of tax etc etc

Certainly when I worked as a limited company contractor in the UK i loved the buzz of buying everything i could associate with work out of gross income and choosing the rate at which i paid myself to pay less tax... but the novelty wore of after a while to be honest.

For a single property i can't see the benefit of using a company structure, the extra costs of running the business will far outweigh the savings in CGT versus corporation tax

[Jon the Hat]

Don't forget to take into account cost of a managing agent.

Edited June 21 by Jon the Hat

[Cheery Thistle]

4 hours ago, can1983 said:

I think there is a lot of presumption that using a company structure is a blag, saves lots of tax etc etc

Certainly when I worked as a limited company contractor in the UK i loved the buzz of buying everything i could associate with work out of gross income and choosing the rate at which i paid myself to pay less tax... but the novelty wore of after a while to be honest.

For a single property i can't see the benefit of using a company structure, the extra costs of running the business will far outweigh the savings in CGT versus corporation tax

Actually that’s not why people do it and that’s the danger of seeking advice on a forum. 
A few years ago the UK govt changed the tax law. If you buy property in your own (with a mortgage) name and rent it out, you can no longer claim your mortgage interest as an expense. 
Very basic example. Joe buys a property and mortgage is £400 a month but he gets £600 a month rent. Old rules he would pay tax on the £200 profit but now he pays tax on the full £600 even though he’s not really in receipt of the income. No negative gearing here!! 
If you buy in Ltd Co you can still offset mortgage interest. That’s the bigger attraction. 

[James]

4 hours ago, Cheery Thistle said:

Actually that’s not why people do it and that’s the danger of seeking advice on a forum. 
A few years ago the UK govt changed the tax law. If you buy property in your own (with a mortgage) name and rent it out, you can no longer claim your mortgage interest as an expense. 
Very basic example. Joe buys a property and mortgage is £400 a month but he gets £600 a month rent. Old rules he would pay tax on the £200 profit but now he pays tax on the full £600 even though he’s not really in receipt of the income. No negative gearing here!! 
If you buy in Ltd Co you can still offset mortgage interest. That’s the bigger attraction. 

As I will earn £0 in the UK from employment, I'll be taxed at the lowest tax rate for most of the rent (as you say, by the new rules). However, as £12,500 is tax-free, having one property won't require me to pay much tax anyway, regardless of interest. Unless the rent goes up by a significant enough amount in the future.

In my calculations, it's still probably slightly better for it to be in a company if I move to Australia, but it's not massively beneficial. So I may just rent it out in my name.

On another note, am I correct in thinking you can rent out a house in Austalia with an 88/90% LTV? It seems crazy we need 75/80 in the UK if that's the case.

[Cheery Thistle]

Yes you still get your tax-free allowance (for now) but remember you should be declaring that income and paying your marginal rate of Aus tax on it if you are tax resident in Aus. 
Regarding max LTV I think 80-85% for Aus. Remember the lower LTV in UK is really for your own protection. As a property investor who rode out the 2008 crash I watched a fair few people lose their shirt - some have only just recovered enough equity to be able to refinance. The UK has more of a boom and bust property history than Aus, although you do wonder if the current spiral upwards in Aus can be sustained - when will it become too much and the bubble might burst? 
You can also negative gear in Aus - meaning you can offset any losses in investment against your other income (salary), which can reduce your overall tax liability. Not something you can do in the Uk. 

[Ausvisitor]

On 21/06/2024 at 08:09, Cheery Thistle said:

There’s more to consider here than just tax. Consider the following: 
- if you buy in a Ltd Co you need to have accounts done annually by a CA. This has a cost attached to it
- mortgage providers to Ltd Co are generally more expensive and there is less choice 

- interest rates are generally higher 

- exit strategy - if you buy in personal name you pay capital gains (looks like this may go up soon) on any gain, if you buy in Ltd Co you pay corporation tax, plus your own personal dividend tax rate (it’s getting messy). 
 

I would ask why you want to buy in UK if you’re getting PR in Aus. 
The climate and taxation regime in the UK has become very anti-landlord. In Aus properties are expensive but you get considerably more allowances than in the UK. Food for thought. 

You really don't need an accountant to submit a simple UK tax return like the one the OP is talking about

[Alan Collett]

On 21/06/2024 at 15:05, Cheery Thistle said:

Actually that’s not why people do it and that’s the danger of seeking advice on a forum. 
A few years ago the UK govt changed the tax law. If you buy property in your own (with a mortgage) name and rent it out, you can no longer claim your mortgage interest as an expense. 
Very basic example. Joe buys a property and mortgage is £400 a month but he gets £600 a month rent. Old rules he would pay tax on the £200 profit but now he pays tax on the full £600 even though he’s not really in receipt of the income. No negative gearing here!! 
If you buy in Ltd Co you can still offset mortgage interest. That’s the bigger attraction. 

That's not correct.

In the UK the mortgage interest is claimed as a tax credit equal to interest amount paid x 20%.

So long as your marginal rate of income tax in the UK isn't more than 20% there is no difference between the two approaches.

This is unlikely to be an issue for you as a non UK resident person.

Best regards.

[Alan Collett]

2 hours ago, Ausvisitor said:

You really don't need an accountant to submit a simple UK tax return like the one the OP is talking about

Remember the SA109 Residence supplement is required to be submitted with the Self Assessment tax return when you're not a resident of the UK.

Lots of people get themselves in a stew over this - might need to buy some tax software to submit the SA109 ...

Best regards.

[Cheery Thistle]

2 hours ago, Alan Collett said:

That's not correct.

In the UK the mortgage interest is claimed as a tax credit equal to interest amount paid x 20%.

So long as your marginal rate of income tax in the UK isn't more than 20% there is no difference between the two approaches.

This is unlikely to be an issue for you as a non UK resident person.

Best regards.

I’m glad you’re here to correct me. Genuinely.
 

It doesn’t feel like a 20% tax credit! It’s likely worse because a) I am a higher rate tax payer and b) I am in Scotland where the higher rate threshold is pitifully low. 

All i can tell you is being a landlord/property investor in the UK has become PAINFUL in recent years. Just like many other areas of life I find(!)

We have gradually shrunk our portfolio from 12 to 4 over the past 5 years. I wouldn’t and won’t put any more cash into UK property. I wouldn't recommend it either. If you have anything at all the government are out to get you.  Keep an eye on capital gains allowances and rates over the next year or 2 as well. 

They really want build to rent to take off so they can just squeeze out individual landlords. 

However what I initially said is true/correct - the main reason people buy in a Ltd Co is so that they can offset the full mortgage interest. You only need to look at the increase in borrowing via Ltd since Osborne introduced Section 24. 

Oh and I haven’t even started on the additional LBTT if you own more than one property! 

Got to love how a government’s response to housing crisis is to crackdown on landlords, rather than build more homes! 

[Cheery Thistle]

5 hours ago, Ausvisitor said:

You really don't need an accountant to submit a simple UK tax return like the one the OP is talking about

If you have a limited company the vast majority of people do engage an accountant for various reasons (though there is no legal obligation). 
It’s not a sole trader self assessment. 

[Ken]

On 20/06/2024 at 19:26, James said:

I understand that you get taxed here in the UK on the rent; however, as I won't be earning any income in the UK, I should get up to 12.5k tax-free (right?), and this would also apply in both a company and in my personal name. 

No. Only individuals get the tax-free allowance. Companies do not. You would need to find a way to extract the money from company to yourself. Some of those methods would be a cost to the company (meaning it didn't need to pay tax) and a UK income for you (meaning you'd have your tax-free allowance to use). With a less tax effective method the UK company pays the tax, the dividend (which is out of profits after the corporation tax has been paid) is paid to you in Australia (as a non-resident of the UK you needn't pay any UK tax on that dividend as it can be disregarded so the tax-free allowance is irrelevant). You get taxed on that dividend in Australia (if you're a permanent resident or citizen). You can't claim the corporation tax paid in the UK because the company paid it not you. You're not quite paying double tax (because the Australian tax is only on the net income), but it's not far off it.

Edited June 24 by Ken