Question about overseas (Aus) property income

curedham

I'm new in this field so please bear with me.

For the first time I have an income from overseas, this is my flat in Australia that currently let. I'm a UK resident and am a resident for taxation purpose in the UK.

So I've declared myself as non tax resident in Australia, did my tax return based on the local Australian tax law and paid the tax.

In Aus the income (rent minus mortgage interest and other allowable deduction) came to (after conversion) GBP 2163 and I paid GBP 703 tax on it.

Now in UK do I have to declare that income? Because using Tax Calc software it looks like I have to pay an extra GBP 300 on it.

Does this look right? It's odd that I have to pay extra tax on it also considering that my total income in UK (salary) is only about GBP 12K.

I don't quite understand this double taxation treaty between UK and AUS, can anyone explain or point to the right direction?

Thanks
CH

Cook_County

Where are you domiciled? Are you filing in the UK on the arising or the remittance basis? If on the arising basis you can claim DTR for Australian tax on any doubly taxed income so you should not owe additional UK tax based on your figures.


You may have a separate UK problem with super.

curedham

I'm domiciled in the UK. Sorry not too sure what yo means by "on the airing" or the "remittance basis". I'm filing in the UK because I had thought you need to declare foreign income but since there's double taxation treaty between UK and Aus there shouldn't be further tax to pay in the UK if I had paid the tax in Aus as a non-resident (in Aus).

DTR: double taxation rule?

booksurr

curedham wrote: »

I'm domiciled in the UK. Sorry not too sure what yo means by "on the airing" or the "remittance basis". I'm filing in the UK because I had thought you need to declare foreign income but since there's double taxation treaty between UK and Aus there shouldn't be further tax to pay in the UK if I had paid the tax in Aus as a non-resident (in Aus).

DTR: double taxation rule?

arising and remittance are the two different methods under which those who are non domiciled in the UK are taxed on their overseas earnings

note there is a distinction between "domicile" and "resident" for tax purposes. If you are UK born and bred then you are UK domiciled and the above 2 methods are irrelevant, instead you would declare your Aus income to HMRC on your tax return and then claim the double taxation relief due under the Aus/Uk tax treaty
read article 6 here: https://www.gov.uk/government/publications/australia-tax-treaties-in-force

alternatively if you are Aus domiciled but UK resident then the situation is different....

curedham

booksurr wrote: »

arising and remittance are the two different methods under which those who are non domiciled in the UK are taxed on their overseas earnings

note there is a distinction between "domicile" and "resident" for tax purposes. If you are UK born and bred then you are UK domiciled and the above 2 methods are irrelevant, instead you would declare your Aus income to HMRC on your tax return and then claim the double taxation relief due under the Aus/Uk tax treaty
read article 6 here: https://www.gov.uk/government/publications/australia-tax-treaties-in-force

alternatively if you are Aus domiciled but UK resident then the situation is different....

So here's the case I'm *not* UK born and bred so by definition I'm not UK domicile (if I underastand you correctly).

Howver I am UK resident and have been living here for the past 9 years and this is my "home". I am now a British Citizen (which doesn't seem to mean much for the domicile status).

So given the above facts, does that mean I need to declare the Aus property income?

BTW there's an "option" on the TaxCalc software that if I select I don't have extra tax burden in UK, it ask if I want to claim "tax credit relief". Does that mean I claim the double taxation relief here?

Thanks
CH

Spidernick

By the sounds of it you need to file on an arising basis and declare the Australian rental income, otherwise you'd have to pay the £30K Remittance Basis Charge given the amount of time you've been in the UK and the level of your non-UK income:

https://www.gov.uk/tax-foreign-income/non-domiciled-residents

One thing to bear in mind: your profit for UK tax purposes will almost certainly be higher than for Australian tax purposes (and hence the additional UK tax due after the credit for Australian taxes paid). This is because in Australia, like the US, they give a deduction for 'depreciation' against rental income, whereas the UK does not, hence your expenses are lower for UK purposes.

Cook_County

But the UK still (until next year) allows a deduction for wear & tear if let furnished.


You'll also have to cope with the unusual differences between the 5 April and 30 June year-ends by pro-rating in some way to arrive at the foreign tax rate.

curedham

Spidernick wrote: »

By the sounds of it you need to file on an arising basis and declare the Australian rental income, otherwise you'd have to pay the £30K Remittance Basis Charge given the amount of time you've been in the UK and the level of your non-UK income:

https://www.gov.uk/tax-foreign-income/non-domiciled-residents

One thing to bear in mind: your profit for UK tax purposes will almost certainly be higher than for Australian tax purposes (and hence the additional UK tax due after the credit for Australian taxes paid). This is because in Australia, like the US, they give a deduction for 'depreciation' against rental income, whereas the UK does not, hence your expenses are lower for UK purposes.

I think this "depreciation" can only be claimed if you have furnishing on your property or recently did some work, say install a new kitchen, and claim depreciation against that kitchen.

Mine had none of this, or more accurately never bothered to get someone to value the kitchen, carpet, bathroom etc that was recently upgraded by the previous owner and claim depreciation on them.

It's very straightforward calculation:

rental income - management fee - landlord insurance - mortgage interest = profit

tax = profit * 32.5%

So because my income in UK is so low (15k) then I'm actually paying more tax in the Aus than UK and therefore shouldn't have any more tax due in the UK.

Spidernick

That's correct - you'd have a liability in the UK at 20%, but the foreign tax credit would also be at 20% (it cannot be higher then the UK rate) bringing the net tax payable down to nil.

Saying that, I think that HMRC will still want you to file a tax return to claim the arising basis and claim the foreign tax credit, so I would check with them. If they do then you should declare the income and expenses based on the UK tax year, as this is different to the Australian year, as Cook County points out. You might want a spreadsheet for each country - a bit of a pain, but not too much.

curedham

Spidernick wrote: »

If they do then you should declare the income and expenses based on the UK tax year, as this is different to the Australian year, as Cook County points out.

OK this is going to be a bit of a pain. Can I just sum everything based on the Australian's income & expenses and treat it as a single income - expenses for the UK tax year rather than treating it on month by month basis?

If I have to pro-rata then do I have to pro-rata the tax paid as well? Because the tax is paid once only right?

Cook_County

curedham wrote: »

OK this is going to be a bit of a pain. Can I just sum everything based on the Australian's income & expenses and treat it as a single income - expenses for the UK tax year rather than treating it on month by month basis?

If I have to pro-rata then do I have to pro-rata the tax paid as well? Because the tax is paid once only right?

HMRC do not like the coterminous basis; although many people use this; but you'd want to disclose in any case whatever you do.


The UK has a mandatory accrual method; and from next year will disallow the mortgage interest and give you a tax credit instead so you may prefer to do proper accounting for each separate tax year.