Taxpayers with UK property rental income

The UK tax year has started again and brings a major shake up in the gradual phasing out of "rent to buy" deductions for interest (or negative gearing as we know it).

If you are an Australian resident taxpayer affected by this change bear in mind that the UK return will now only allow a deduction for 25% of interest. ($0 in a year !) This may mean UK tax is payable. For an Australian tax resident some of this tax may be creditable against your reported loss (??) for that same property in Australia. And the Australian foreign income that is reported permits 100% of the interest cost to be claimed.

 

Does this start from 5th April this year onward, or apply to last UK fin year too?

We sold our UK house November last year, haven't done the returns as yet for 2018-2019 UK fin year.

 

6th April 2019 +

In the year ended 5th April 2019 the buy to let interest deduction was only 50%

 

Thanks Paul. Was it still 100% at year end 5th April 2018 do you know? Haven't done 2019 yet so your post is very timely for me.

 

In the period 6th April 17 to 5th April 2018 it is 50%
to 5th April 19 it is now 25%
From 6th April 19 onwards its $0

 

Apologies if this has been covered elsewhere, but how is this foreign income assessed by the ATO? For example - if you had an IP providing 20,000GBP/year, you would pay the UK tax on this income. But as the UK marginal tax is less, does the ATO then take this and add the difference to your assessable Australian taxable income? Is the end result just like earning an additional 36,000AUD once all taxes are paid?

 

It depends. If UK tax has been paid it may be fully or partially allowed. The details of the UK tax may need review. If the UK gain was 20,000P and 8,000P has been paid on thsi it may susprise or annoy you to find that if its a discounted gain (50%) then only 50% of the tax credit may be allowed. A recent case is under appeal but doesnt look like it will fare any better than others who have tried.

Full and final tax may be in the country of residency. There can also be issues with change of residency too.

 

Fortunate I have no borrowings on my UK property investments!