Claiming UK negative gearing against Australian income tax

[Vision MS]

Hi everyone,

I need to confirm that you can claim the negative gearing from rental property in the UK against your personal income tax here in Australia? I have a customer who has a property in the UK which is presently positive geared and is paying tax on the 'income', has good servicability here but not enough for a deposit so is struggling to get a loan!

I thought that there was a agreement between the two countries on taxation?

If he was to restructure the finance on his UK property to draw down enough to cover exspenses and hopefully take him below 80% LVR (saving lenders mortgage insurance) and at the same time be able to claim the negative gearing against his personal income tax here?

Can anyone clarify this for me with any links so I can confirm this before moving forward with this.

Many Thanks

Nick Alcock

 

[Qlds007]

Hi Nick and welcome to the forum.

Subdivision 36-A of the Income Tax Assessment Act 1997 is from memory the reference point for your answer but Yes a double Taxation arrangement exists.

See you at the weekend.

 

[Jonathon]

I thought that there was a agreement between the two countries on taxation?

If he was to restructure the finance on his UK property to draw down enough to cover exspenses and hopefully take him below 80% LVR (saving lenders mortgage insurance) and at the same time be able to claim the negative gearing against his personal income tax here?

Nick

There is a double tax agreement with the UK, but that's a separate matter to your negative gearing matter, although it may be relevant if the property stays positively geared.

Foreign properties are now (since about 2 years ago) subject to the same negative gearing arrangements as Australian properties. So, if you make a loss on the foreign property, you can offset that loss against your Australian income.

However, your friend can't claim an additional tax deduction if he restructures his UK mortgage to draw down more funds, unless those funds are used to either develop/improve/maintain his property or buy another property. (Under either Australian or UK tax)

Incidentally, the UK doesn't have an 80% LMI level, up there 95% mortgages are the norm, at least for PPORs. (There's no way the general population could save 20% for a deposit)

Cheers
Jonathon