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Anyone with a UK property? Big tax changes ahead.

Discussion in 'Accounting & Tax' started by Propagate, 21st Jan, 2016.

  1. Propagate

    Propagate Well-Known Member

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    We have our old PPOR in the UK which we kept and let when we moved here 8 years ago.

    Just got a letter forwarded from my Dad about the new UK tax changes for landlords.

    Basically, any new purchases of IP's will incur an additional 3% stamp duty surcharge on top of the regular stamp duty, and in addition, from 2020 mortgage interest will no linger be deductible from income! This will be phased in over the next few years.

    New rules for buy-to-let | Barclays

    Doesn't affect us as the total rent we receive doesn't exceed the tax free threshold anyway, regardless of deductions, but may affect other expats on here?

    Or would it? As a Australian Resident, even if you're UK tax bill rocketed due to UK derived income, would it be offset as a tax credit back on your Australian return anyway? Or do tax credits only apply up to the level at which the tax would have been payable at in Australia?

    It will be interesting to see if Australia take on a similar system, our tax bill (I guess as many others), would go through the roof if the same changes came in here. We'd likely have to completely sell up.

    Cheers.
     
  2. James Bond

    James Bond Well-Known Member

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    I also have a property in the UK - as far as I can see this will only benefit me as I'm not planning on buying any more (so don't care about stamp duty) and have no mortgage on it (so don't care about mortgage interest). But I do reckon that as a result of this rents may increase as landlords are faced with greater expenses, also less property in the BTL market may also increase rents.

    JB
     
  3. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    The UK proposal to limited negative gearing is being watched by Treasury in Australia, I had seen a discussion of this proposal in the context of what may happen if Australia copied the change.

    The method of separating the income and deductions would require an extensive rewrite of Australian tax law which may have a total contextual change. Probably the largest rewite ever to have happend. Unlike CGT which was "dropped into law" these changes would require extensive rewrite of multiple laws AND then a long period of common law determinations. However it merely addresses property. It doesn't address say share margin lending or other forms of geared investment ie forestry, etc projects, shares, ETF, trusts etc. Without broadening the changes to encompass all geared investment and use of structures like unit trusts there would be substantial avoidance. The solution in such cases may then be to uniformly tax entities like companies. At present Australian taxable income is determine on a total basis. ie all income less all deductions. The UK proposal would tax all income and then provide a credit for eligible expenses.

    The paper I refer to did suggest that if combined with rewrite of our basic deduction laws so that taxpayers lost the right to claim deductions against income and this would be replaced by a system of approved allowed deductions (statutory deduction caps etc) but the law changes would be exceptionally difficult and likely not pass Parliament without a majority upper and lower house. And how might this impact Centrelink benefits if a family needs to determine its true adjusted taxable income...How would denied deductions be adjusted ?? The changes would need to be phased in like the UK...Not so easy if laws a rewritten.

    The benefit of the UK change is that high income earners have a far higher impact upon their tax outcomes as the costs which give rise to neg gearing are not deductible at marginal tax rates (51% at its highest) but at a capped rate that reflects a low income earner ie 19%.

    However in Australia the interaction of CGT rules needs to also be considered. If Australia repeated the UK example taxpayers would merely increase their cost base for the interest deduction (80%?) not deductible.

    The social impact of this policy shift is being carefully watched as it could result in substantial sales of rental properties by landlords who don't want a substantial tax bill. For many retained properties the higher costs may be passed onto renters and with a fall in supply this could push rents higher. The UK property market has not be as speculative as Australia's and the impact of similiar changes could be far more severe here. It could lead to a secondary market glut of established properties being dumped causing prices to drop and yet new properties being bought by overseas buyers could hold those prices up.

    The higher stamp duty change is also a disincentive for acquisition of rental properties although it does not appear to impact on a property that was acquired as a home and then the use changes in later years. Changing stamp duty laws here would be fairly easy as states already have a uniform agreement so that one state duty and another are alike.

    The most adverse issue contemplated in the Australian comparison would be the banks / lenders. Banks may need to review customer portfolios to determine cashflow impacts and servicing capacity. Owners may be forced to sell by their lender. The impact of this could snowball.
     
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  4. Propagate

    Propagate Well-Known Member

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    I can see how negative gearing here may be abolished eventually, as in the deductions only being allowed against the same category income, so mortgage interest only claimable up to, but not exceeding the rent income.

    What the UK has done though is way further than that, i.e. from 2020/2021 none of the mortgage interest is claimable at all and all of the rental income is taxable?
     
  5. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    Yes and if Australia considers abolishing neg gearing that's a possibility also. Encourages property INVESTMENT that uses cash savings not borrowed money for geared speculation.
     
  6. mrdobalina

    mrdobalina Well-Known Member

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    Aren't you in the market for a new one? I thought skyfall burnt down?
     
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