Strategy: Leave the former PPOR empty

Had a chance meeting with an acquaintance that lives nearby that I had not seen for a long time. It turns out he is living in the UK and has been for 8 years. As so often happens, our conversation turned to the property market. He hasn’t rented his PPOR out, just leaves it empty and he and his family come back every Christmas and stay into the New Year, which means no NSW land tax as they are occupying the house on the taxing date of 31st December. He comes to Sydney a couple of times during the year, and the next door neighbor parks their car in the carport and collects any mail. His take is that as a former PPOR the CG is tax free, which is far more important than receiving any rent income, having concerns about the 6 year rule, or having to deal with tenants and property managers.

The point is, if he sold the place, how else could you achieve a tax free CG with something as risk-free as a nicely located house in Sydney? Especially as a non-resident you don’t get the 50% CGT discount if rented for more than 6 years. Though I’d share this, just wondering if there is some catch somewhere with this approach. I’m assuming the PPOR is owned outright, and the only holding costs are council rates, insurance plus some utilities.

 

can't claim any expenses as there is no income, but not a big deal perhaps if largely paid off

 

I imagine your mate (or his accountants) would want to swot up on the Aus-UK double tax treaty but my uneducated guess is it is probably fine.

Another catch is he is a UK resident for tax purposes thus liable to pay inheritance tax of up to 40% on his Australian property or properties. Not likely an issue if he leaves the UK before hand though.

 

How does he go about insurance? A lot of insurance companies won't touch a vacant property.

If he is simply continuing his PPOR insurance it may be invalid due to it being vacant?

I could be wrong but it'd definitely be worth reading the fine print on any policy he might have....

 

Very good point, this would apply to other forms of investment as well not just to a house in Australia. Other countries also have inheritance/estate taxes. One possible action would be to place assets in an Australian trust, with the trust deed limiting distributions to only Australian tax residents. (I'm not a lawyer, so don't take this as advice)

 

Also a good point. I was curious about this so checked what my own insurance policy says:
Under policy details is the line "is occupied by the owner who lives in the home". No other detail on absences anywhere else in the policy. It would be normal for an owner to go away for days, weeks or even a few months, but when there is an extended absence it would be worth checking with the insurance company.

 

I had this issue early 2018 - being away more than 60 days (or 90 days) can cause issues with the property being classed as "lived in"....some insurances accept being fully furnished & services connected as "lived in".
You have to check....
My insurer was QBE via a broker.
They got a special allowance of 90 days for my property.
Got 6 months by using the first 90 days then the insurance broker advising QBE of the vacant premise for the other 90 days....

Seems a good idea to limit CGT on a PPOR while overseas if you don't need cashflow.

 

It is not land tax free if you aren't living there. It's an exemption for a property you use as your home. A lot of people who travel for a large part of the year got caught out.

When you no longer occupy the land as your principal place of residence, the exemption should be removed and land tax may apply. It is your responsibility to notify us when this happens or else penalties and interest may result.

 

But there are laws for absences