Category Archives: Tax in UK and Australia

Restricting Finance Cost for Individuals

The changes will restrict relief for finance costs on residential properties to the basic rate of Income Tax. These changes will be introduced gradually from 6 April 2017.

Finance costs includes mortgage interest, interest on loans to buy furnishings and fees incurred when taking out or repaying mortgages or loans. No relief is available for capital repayments of a mortgage or loan.

Individuals will no longer be able to deduct all of their finance costs from their property income to arrive at their property profits. They will instead receive a basic rate reduction from their income tax liability for their finance costs.

Individuals will be able to obtain relief as follows:

  • in 2017 to 2018 the deduction from property income (as is currently allowed) will be restricted to 75% of finance costs, with the remaining 25% being available as a basic rate tax reduction
  • in 2018 to 2019, 50% finance costs deduction and 50% given as a basic rate tax reduction
  • in 2019 to 2020, 25% finance costs deduction and 75% given as a basic rate tax reduction
  • from 2020 to 2021 all financing costs incurred by a landlord will be given as a basic rate tax reduction

Please contact us at GM Tax should you wish to discuss how this changes may impact on you.

Capital gains tax changes for foreign residents

21 July 2017 | Exposure Draft

As part of the 2017-18 Budget, the Government announced that it would be making capital gains tax (CGT) changes for foreign residents.

Main residence exemption

From 9 May 2017 the Government will remove the entitlement to the CGT main residence exemption for foreign residents that have dwellings that qualify as their main residence. Therefore any such capital gain or loss arising upon disposal of a foreign resident’s main residence will need to be recognised.

Principal asset test

From 9 May 2017 the Government will modify the foreign resident CGT regime to clarify that, for the purpose of determining whether an entity’s underlying value is principally derived from taxable Australian real property, the principal asset test will apply on an associate inclusive basis.

We urge you to seek professional advice when deciding to sell your property as a non resident.

Witholding tax on disposals made by non residents

New rules for foreign resident capital gains withholding (FRCGW) apply to vendors disposing of certain taxable property under contracts entered into from 1 July 2017. The changes will apply to real property disposals where the contract price is $750,000 and above (previously $2 million) and the FRCGW withholding tax rate will be 12.5% (previously 10%) unless a clearance certificate is obtained from the ATO. The existing threshold and rate will apply for any contracts that are entered into from 1 July 2016 and before 1 July 2017, even if they are not due to settle until after 1 July 2017.

Where a withholding obligation exists, the purchaser must withhold the relevant amount at settlement and pay it to the ATO without delay as a general interest charge may apply to late payments. The purchaser is required to complete an online Purchaser Payment Notification form at which time the purchaser will receive a payment reference number, and a payment slip allowing payment to be made.

The penalty for failing to withhold is equal to the amount that was required to be withheld. An administrative penalty may also be imposed.

Have you sold your UK Property?

With the introduction of the new rules effective for disposals after 6 April 2015 you will need to report the disposal on a NRCGT return (Non-residents Capital Gains Tax Return) and pay any CGT due if any within 30 days of the day after the date the property has been conveyed.

If you are already within the UK’s self-assessment (SA) system for income tax and CGT, you will need to report the disposal on a NRCGT return within 30 days with payment being made as part of your normal end of year tax payment (i.e. after completing your self assessment return) or you will also have the option to pay at the time of reporting.

  • All disposals must be reported to HMRC irrespective of whether there is a tax liability and regardless if the property qualifies for Primary Residence Relief or Letting Relief.
  • The property can be valued retrospectively (i.e. by the estate agent upon sale) or by a professional valuer. A professional valuation will be the least challenged by HMRC.
  • Any tax suffered in the UK would be available to be offset on your Australian return up to the amount of Australian tax due.

HMRC have imposed a strict penalty regime for late submissions so we urge you to contact us today if you have a property in the UK that you are in the process of selling or have already sold.

Tax deductions for personal superannuation contributions

In the 2016-17 Budget, the Australian Federal Government announced that from 1 July 2017 all individuals under age 75 will be able to claim an income tax deduction for personal superannuation contributions. Currently only individuals who derive less than 10 per cent of their income from employment sources can claim this tax deduction.

These amounts will then count towards an individual’s concessional contributions cap which is $25,000 from 1 July 2017 and be subject to 15 per cent contributions tax in the fund.

To access the tax deduction, individuals will lodge a notice of their intention to claim the deduction with their superannuation provider. This notice will need to be lodged before you lodge your income tax return, you can choose how much of your personal superannuation contribution you wish to claim a deduction for.