UK property

UK Property – 4 tips for Australian expats seeking to buy

Tuesday, December 8, 2020 by Shane Macfarlane CA

UK Property purchases remain attractive to Australian expats thanks to subdued property prices caused by Brexit and now COVID-19. If you are an Aussie expat looking to buy a UK property, here are a few important tax implications to consider:

1. Secure property financing right away

If you are a non-UK resident seeking financing from UK banks, it may be more difficult to obtain because of the lack of a UK credit history (for recent expats) and because of increasing regulatory obligations and restrictions in the UK. However, certain UK and foreign banks can still lend you money if you have the right financial/tax advisor or mortgage broker to assist you. On this note we highly recommend that you engage a mortgage broking firm/advisor that:

  1. is regulated by the FCA (Financial Conduct Authority),
  2. is experienced in assisting non-UK expats, and
  3. has access to UK high street banks as well as private banks

Lending requirements of high street banks are often tighter and less flexible for expats living and working in the UK. Often, income denominated in a foreign currency, and foreign property assets can be an issue.

Lending criteria for private banks however tends to be more flexible. Private banks generally lend on a case by case basis and and so income earned by expats in a foreign currency is not necessarily an issue. Thus due to this flexibility, obtaining financing from private banks can often be easier than with traditional high street banks.

The majority of private banks generally require expatriate/international borrowers to provide a minimum deposit of at least 25% of the purchase price, although this depends upon the lender and upon your personal circumstances.

With a standard mortgage for an investment property, known in the UK as a ‘buy-to-let’ mortgage, high street banks generally require the monthly rental income to be equal to around 125-150% of the monthly interest payments. Private banks however tend to be more flexible, often allowing you to use other personal income earned by you towards their buy-to-let interest requirements.

2. Consider the increase in Stamp Duty if you own more than one residential property

Australians with UK property pay a compulsory Stamp Duty Land Tax (SDLT). If you are a first-time residential property buyer, the tax will range between 0% to 12% of the total purchase price. If this is not your first residential property, the tax will be higher. Property purchased via a company is subject to different SDLT rates and tax relief may apply in certain circumstances.

We highly recommend that you discuss your individual circumstances with your personal tax advisor in the UK as they will be able to assist and advise you successfully in relation to your potential SDLT liability.

3. Consider inheritance taxes

Unlike Australia, the UK levies inheritance taxes of up to 40% for UK residential property and so this is an issue that Australian expats should be aware of when considering purchasing property in the UK.

Even where you own UK residential property indirectly via a company or trust, it will still be subject to UK inheritance tax. With help from an appropriately qualified UK expatriate tax specialist, you may be able to mitigate potential UK inheritance taxes as well as receive assistance with loan financing, life & other insurances and importantly, estate planning.

4. You may also be subject to Australian tax

Consider the tax implications that your acquisition of UK property will have on you in Australia. Although not generally an issue whilst you remain a non-resident for Australian taxation purposes, be aware that there will be tax consequences once you regain your Australian tax residency.

As an Australian tax resident, your worldwide income and worldwide assets are subject to tax in Australia, and this will also apply to any UK properties and/or other foreign assets that you have purchased in the meantime. This will apply not only to the net rental income that your UK property generates, but also to the gain or loss that you will make, when ultimately, you dispose of your UK property.

If you’ve bought a UK property (or wish to)and if you wish to understand the Australian taxation consequences of owning property in the UK or elsewhere, contact us or if you seek more than basic, general advice, perhaps consider booking an tax advisory consultation with us here at Expat Taxes.

Our Australian expatriate tax specialists would be more than happy to assist you to wade through and understand what are often, complex issues .

Shane Macfarlane CA
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