If you are an Australian, one decision you will have to make if you come to the UK to live and work is whether or not you should buy a property.
Obviously, everyone’s circumstances are different, and your decision will depend on several factors that will be unique to you.
As a general rule, much will depend on how long you’re planning to stay in the UK and whether you have a family.
There are also decisions about whether you buy a home that you live in, or a buy-to-let (BTL) property as an investment and income source. You will then need to consider what to do with any property if or when you return to Australia.
It can be a complicated issue, so to get you started, discover four important questions you need to consider if you’re an Australian thinking of buying property in the UK.
1. How long will you be staying in the UK?
Probably the most important consideration that will affect your decision is the length of your intended stay in the UK.
Buying a property is generally seen as a long-term financial commitment. So, it can make sound financial sense to buy a property to live in if your stay will exceed five or six years. In this way, you effectively treat your purchase in the same way as you treat an investment, with a longer time frame minimising the risk and maximising your opportunity of being able to sell the property for more than you paid for it.
For the same reason, buying a main residence to live in for a short time might not such a sound financial decision.
As well as the actual purchase price, you also need to factor in the various costs of a property purchase. These could include:
- Your legal costs
- Stamp Duty Land Tax (SDLT)
- Any mortgage arrangement fee.
According to MoneyHelper, the current average cost of property purchase can be up to 20% of the purchase price. Such an outlay could prove costly if you’re returning to Australia after a short time.
If you are staying for a limited time or moving around in the UK rather than settling down in one place, then renting may be a better option.
2. Are you looking to buy somewhere to live yourself?
If you are planning to stay in the UK for an extended period, or especially if you plan a permanent stay, then, as well as providing you with a tangible asset to live in, buying a property could be sensible.
For example, there is currently no Capital Gains Tax (CGT) payable on the sale of your main residence in the UK. This means that, if you do intend to return to Australia after an extended period, you do not have to worry about a tax charge when you sell your property prior to returning home.
In the longer term, buying a property rather than renting can often provide you with a cheaper place to live. This will be even more the case if and when UK mortgage interest rates start to come down from their recent high.
Furthermore, as a property owner, you also get the peace of mind of knowing you’re living in an asset you own, rather than being dependent on a landlord or property company for your long-term residential security.
If you are looking to purchase a property, we would always recommend you get advice from a mortgage expert. This isn’t something we are unable to help you with ourselves, but we are always happy to recommend someone to you.
Not only may they have access to better mortgage deals, but as an expat, you may be subject to different lending criteria, especially if you have not lived in the UK for a long period, and – as a result – have not had time to build up a UK credit history.
3. Are you considering a buy-to-let purchase in the UK?
Buying property to rent can be seen as an effective long-term investment, as well as a source of regular income.
Borrowing money to purchase property can create leverage that can boost your profits. Often, this leverage will be in excess of any returns you may get from the stock market.
For example, if you invested £100,000 and borrowed £300,000 to purchase a property for £400,000 that you subsequently sold for £500,000, you would have made a 100% profit, less any charges and ongoing costs. You would also have received a regular rental income during this time.
In the 15 years following the financial crash, low interest rates and high demand meant that the UK BTL market BTL was buoyant. According to Property Data, the BTL market was worth over £40 billion in 2022.
However, a combination of rising interest rates and a series of financial changes has seen the market go through a recent period of upheaval.
This has meant a dramatic decline in the size of the market, with Uswitch reporting that in April 2024, it had declined 41% since its 2022 peak.
Interest rates are now starting to come down, but the financial changes mean that you should consider carefully before looking to purchase a property to rent while you are living in the UK.
These changes include:
- A reduction in your CGT exempt amount from £12,300 in 2022/23 to just £3,000 now, meaning that you are likely to face a higher tax charge when you come to sell any investment property.
- The introduction of an additional SDLT charge of 3% on second and subsequent properties, increasing your initial costs.
- The removal of the ability to offset your mortgage interest against tax, replaced by a 20% tax credit, which disadvantages higher- and additional-rate taxpayers.
It’s also important to bear in mind that property is an illiquid investment asset. This means that any capital growth cannot be accessed until the property is sold, so may not be an ideal source of retirement income, particularly if you are planning to return to Australia.
If you’re considering buying a property, or properties, to let while you are living in the UK, we would recommend you get expert financial and taxation advice.
Additionally, if you plan to return to Australia at some stage, you should consult a tax specialist about whether to sell your property before or after returning.
4. Have you considered buying a property in Australia?
Subject to your long-term plans, if you are looking to purchase a property as an investment and source of income, Australia may prove to be a more suitable option than the UK.
For one thing, if you don’t already own property in Australia, it means you will always have somewhere to live when you do eventually decide to return home after time spent living in the UK.
There are also financial advantages that you may want to take into account.
For example, 100% of your mortgage payment is deductible when it comes to calculating your taxable income.
Furthermore, subject to the age of the property, the Australian Taxation Office (ATO) allows property owners to claim depreciation as a tax deduction.
You can also benefit from the different tax systems that operate in the UK and Australia.
As you will be aware, in Australia your total income from earnings and capital gains is treated as a single entity for tax purposes and you are taxed at your marginal rate on your total net income. Unlike in the UK, you are able to offset capital losses against your total income and, as a result, potentially reduce your tax liability.
All these factors taken together mean that, if you are planning to return to Australia at some stage, it’s possible to manage an Australian BTL property or portfolio in a highly tax-efficient way.
However, one important point you should be aware that if you are a foreign resident, you are not entitled to the main residence exemption from Capital Gains Tax that you would be if you were an Australian resident at the time of sale.
We would strongly recommend that you get expert advice to both ensure that you are maximising the tax advantages, and not making any potentially costly mistakes.
Get in touch
If you would like to talk about your property plans while you are in the UK, or any other aspect of your financial planning, please get in touch with us.
Please note
The value of your investments can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
This article is for information only. Please do not solely rely on anything you have read in this article and ensure that you conduct your own research to ensure any actions you may take are suitable for your circumstances.
All contents are based on our understanding of ATO and HMRC legislation, which is subject to change.
