The pros and cons of buying UK property if you’re an Australian

Category: Uncategorized

One of the decisions that Aussies have to make when they come to the UK to live and work is: should I buy a property?

Obviously, everyone is different, and much will depend on how long you’re planning to stay in the UK, whether you have a family, and so on. There are also decisions about whether you buy a home that you live in, or a Buy-to-Let property as an investment.

Here’s what you need to know if you’re an Australian thinking of buying property in the UK.

Buying a primary residence

If you’re thinking of buying a property in the UK, it can be sensible to consider buying a primary residence rather than an investment. There are three main reasons for this:

  • Presently, there is no Capital Gains Tax payable on the disposal of a main residence in the UK. If you sell an investment property, gains are taxed at 18% if you’re a basic-rate taxpayer, or 28% if you’re a higher or additional-rate taxpayer
  • There is a 3% Stamp Duty surcharge on second properties that is not payable on the purchase of a main residence
  • It can provide you with a cheaper place to live. Figures show that buying can leave you much better off than renting, even if house prices don’t rise

The one factor to consider is: how long do you intend to live in the property?

Buying a main residence to live in for a very short time might not be as good an investment, taking into account the costs of purchase, Stamp Duty, and the costs of getting finance.

If you can buy a home, add lots of value and then sell-on your property, you may make a profit, otherwise, it could be costly to buy if you’re only in the house for a short period. If you’re returning to Australia, the decision to sell before or after returning is a complex one that needs professional help from a tax specialist.

Buying a Buy-to-Let

Despite changes to laws and the way an investment is taxed (in terms of buying, disposal, and rental income), Buy-to-Let in the UK can still be profitable.

However, due to:

  • Stamp Duty charges for foreign buyers/second homes
  • The fact that you only now receive a 20% tax credit rather than your mortgage interest being deductible for tax
  • Potential Capital Gains Tax on disposal

the after-tax yield can be quite low. For many people this isn’t an ideal retirement income option as the capital growth can’t be turned into income until it is sold (unlike liquid assets). The income is also taxed, unlike other forms of investment such as ISAs.

What a property does give you, however, is leverage with debt.

For example, suppose you put down £100,000 on a £400,000 property and borrowed the remaining £300,000. If the value of the property increased to £500,000, you’d have made a 100% return on your initial investment (less finance costs etc.)

Had you invested £100,000 in the stock market, achieving a 100% return may have taken significantly longer. So, the return on investment you receive may be better if you can borrow to buy.

Buying in Australia has some benefits over buying property in the UK

It’s worth saying at the start that there are a few reasons why Aussie expats might choose to buy a property back home rather than in the UK.

  • 100% of your mortgage payment is deductible when it comes to calculating your taxable income. Compare this to the UK where all income is taxable, less a 20% tax credit
  • Depending on the age of the property, the Australian Taxation Office (ATO) allows property owners to claim property depreciation as a tax deduction. There is no such rule in the UK
  • The commission you pay to a letting agent in Australia is capped at 8%. There is no cap in the UK, and you can sometimes pay 12-15% or more
  • If you borrow, for example, 80% of house value and then run a tax loss that accumulates in Australia, on your return you can use that to offset Income or Capital Gains Tax. The Australian tax system is different to the UK in that you receive one income statement with capital gains on top of income, and then you’re taxed at your marginal rate. Losses in the UK can only be offset against gains, not income
  • In some states, Stamp Duty is lower than it is in England.

The main downside of buying in Australia rather than the UK is that interest rates are significantly higher in Australia, at around 3.5% to 4%. There is also a currency risk depending on the relationship between sterling and the Australian dollar.

Your tax status in the UK will also be a factor if you’re making profits on your Australian property.

What this all means is that, if you know you are going back to Australia, you can structure a property in a tax-advantageous way – although you may need specialist advice.

Note that this approach will not work for a foreigner (a Brit) buying in Australia. This is because foreigners face harsher rules when it comes to buying property, introduced to try and control prices and ensure property remains affordable to local buyers.

Get in touch

As a cross-border financial planning firm with offices in both the UK and Australia, we’re uniquely placed to help you with your financial arrangements – and this includes the tax implications of owning property.

Get in touch to find out how we can help.

Please note

Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.

Buy-to-Let (pure) and commercial mortgages are not regulated by the FCA.