IPs in Oz, Living in UK

[Ike]

Hi all – here goes my first post!!!

We are in a position to buy another IP (or 2), however we have plans to work in the UK for a few years (anywhere between 2-5 years). We intend to head over there in about 2 or 3 years time.

Does anyone know how the UK tax office views IP’s in Australia? What do we need to consider/be aware of?

Cheers

 

[alexlee]

UK doesn't have world wide tax, so it doesn't care what you have outside the UK. The ATO, however, has its own rules (because Australia DOES have world wide tax if you're a tax resident).

The main points are (and try to find my long post on this as that has more detail):

1) Your UK salary won't be double taxed in Oz because UK and Aus has a double tax treaty (as long as you pay full tax in the UK you won't be further taxed in Australia)

2) If you continue to claim Oz tax residency (which you are allowed to do), your UK salary forms part of your taxable income. Now, here is the trick. If you happen to be negatively geared on your IPs, your tax rate is ZERO. Losses are accumulated on your tax return (keep a record of this) and offset against Australian income. Before you ask why you can't offset it against UK income, remember you're not paying any UK tax on the aussie stuff. Why should Inland Revenue give you anything?

3) One strategy (which I have used) is to continue to claim aus tax residency, report your UK salary on your Aus tax return, and get some nice franked dividends from Australian shares. With a net tax loss, your marginal tax rate is zero and you get all the franking credits back.

A few points to talk to your accountant about, anyway.
Alex

 

[Ausprop]

"1) Your UK salary won't be double taxed in Oz because UK and Aus has a double tax treaty (as long as you pay full tax in the UK you won't be further taxed in Australia)"

I thought you had to make up the diff between the marginal rates?

anyway... what happened to the good ol aussie tradition: go to the UK, buy a shelf compnay for 50 quid, make a killing, remit no tax and bugga off in a campervan around europe?

I like the story of a laborer that rocked up and copied someones resume claiming to be some high level computer dude. At about 100 gbp an hour it took a few weeks for them to figure out he knew absolutely nothing. he spent the summer in europe and didnt have to pull a single beer! after working with some of these guys and seeing how they ponce around it really isn't hard to imagine it happening.

 

[alexlee]

"1) Your UK salary won't be double taxed in Oz because UK and Aus has a double tax treaty (as long as you pay full tax in the UK you won't be further taxed in Australia)"

I thought you had to make up the diff between the marginal rates?.

No, you don't. It's a specific exemption that only applies to SALARY income earned in countries that have a double tax treaty. You have to work for more than 90 days, I think. Note this may change if you, say, funnel UK income through a company and take divs in stead.

anyway... what happened to the good ol aussie tradition: go to the UK, buy a shelf compnay for 50 quid, make a killing, remit no tax and bugga off in a campervan around europe?

This is where it gets hairy. If you claim aus tax residency, your UK dividends are further taxable in Oz. Salary is specifically exempted.
Alex

 

[Ike]

Thanks Alex

I found the previous post that you mentioned - I think I will be busy trawling through a fair bit of information there. I had been a bit concerned as to how we would cope financially living in the UK and keeping -ve geared property in Australia, without the annual benefits of deductions.

We had thought about buying a property when we were in the UK, renovating it and selling when we left. It sounds like this might get a bit complex if we want to keep our Aus tax residency.

Cheers

Ike

 

[alexlee]

You should be making (and therefore saving) more money by going to the UK. Hopefully the extra savings will enable you to make up the -ve cashflow. The tax losses will have to be used up by future earnings or dividends /interest.
Alex