How to pay tax on UK rental income when non-resident for tax purposes.

I am doing some forward planning as I intend to become an Australian resident for tax purposes, and I have a few questions as to how I will pay tax on my rental income. 1. The Australia Tax Office advised that under the Double Taxation Agreement, I should only pay tax on UK rental income in Australia. However my understanding is that I pay tax on this income in the UK first, then get a tax credit against any additional tax paid on this income in Australia. Is that correct? 2. Assuming the above is correct, am I also correct in saying that the UK calculation will only consider my UK income. E.g. if I my sole UK income is from rental property, and that income is £12,000 after allowable expenses, I would owe £0 tax in the UK, as I am under the personal allowance? And that this would be true even if I earned £50,000 from employment in Australia? 3. Am I correct that the UK calculation will be based solely on UK rules (around deductions, tax rate etc), and that the different rules for this type of income in Australia have no bearing on the UK calculation? 4. When performing the UK calculation I understand I can deduct 20% of the total mortgage interest paid against my final tax bill. Is this correct, or do I deduct the this from the total taxable income? 5. If I am non-resident in the UK for tax purposes, does the 20% mortgage interest deduction still apply? 6. Are there any changes to the UK calculation I need to be aware of on account of being a non-resident? Many thanks for your help.

Hi ,
 

Thanks for your question. As per Article 6 (1) of the Australia/UK Double Taxation Agreement, income from property in the UK may be taxed in the Contracting State in which the property is situated. You are correct, income from property within the UK would be disclosed within the SA105 UK Property page, then you would claim back tax credit from the Australian authorities for the difference in tax deducted. If income from property in the UK does fall below the personal allowance, then no income tax should be deducted, however, personal allowances and any deductions must also be taken into consideration. You would declare Australian employment income within the SA106 Foreign page, which would be included within your overall calculation. When declaring the mortgage interest figure, you would place this through as a residential finance cost, not an expense. You may be required to state whether you are eligible to claim the UK personal allowance within the SA109 Residence page, again however, I would be unable to definitively advise on your personal situation as other factors may need to be considered. Thank you .

I have some further questions: You state: "If income from property in the UK does fall below the personal allowance, then no income tax should be deducted, however, personal allowances and any deductions must also be taken into consideration.". Can you please elaborate on 'personal allowances and any deductions'? You state: "You would declare Australian employment income within the SA106 Foreign page, which would be included within your overall calculation.". The HMRC hotline was explicit that Australian employment income would NOT be considered in my UK calculation. Who is correct? Please provide a source of information as unfortunately I regularly get mis-information from HMRC which makes completing my taxes correctly a lottery. You state: "When declaring the mortgage interest figure, you would place this through as a residential finance cost, not an expense.". The question was whether the 20% of mortgage interest is given as a tax credit to reduce my final tax bill (rather than final taxable income). I do not want to know how to put it through, I want to know the outcome. You did not answer #5

Not HMRC...Ermmm no, per DTA, employment income (article 14) taxable ONLY in one country unless exercised in the other...so no FTC is available and not liable in UK, if tax resident in Australia and not in UK at the time, Australian earnings wouldnt go anywhere near a UK return unless exercised in UK if that person is not tax resident in the UK...which is what the questioner is indicating the situation would be at that time. n.b. You dont deduct 20% interest, you claim all of the interest paid that relates to the let property, the calculation then gives releif at 20%...however, if you dont have a liability before that tax credit you wont actually get the tax credit at 20% as there would be no tax to set it against.

Hi,
As a non-resident in the United Kingdom, certain countries residency does not guarantee personal allowances shall be given. You need to refer to the country of residence's Double Taxation Agreement with the United Kingdom for further information:
Tax treaties
Further to this, deductions such as underpayments, benefits in kind, would need to be considered also.
In relation to the original response, please follow guidance on tax on foreign income which states you may need to pay UK Income Tax on your foreign income, such as wages if you work abroad, here:
Tax on foreign income
If declaration is required, you would insert this within the SA106 Foreign page.
As per the previous response, you would receive mortgage interest relief at the basic rate.
Thank you.