My wife and I are planning to go to Australia for five years on a parent visa to help out my daughter with her young children. We plan to rent out our main UK residence for this period; we are both retired and plan to use the rental income to pay for a rental property in Australia. Can the rental cost in Australia be offset against my possible tax liability in the UK, as I won’t be making a profit from the rental? Alternatively, would it be viable to maintain a small mortgage on our UK property to add to the running or management cost to offset any tax liability? 

Arthur Weller replies:  

Unfortunately, HMRC will not allow your rental expense in Australia to be offset against your rental income in the UK. This is because HMRC will argue that everyone needs a place to live, and the rental expense is a personal expense. See HMRC’s Business Income manual at BIM37298 (https://tinyurl.com/mpr6v4ts). However, if you take out a mortgage, the interest payments will be an allowable expense against your rental income see (https://tinyurl.com/mehdxxwy), assuming that the amount of the mortgage is not more than the market value of the house when you start to rent it out. This last point is relevant if the value of the house rises and you obtain a remortgage or second mortgage. But don't let ‘the tax tail wag the commercial dog'. Don't take out the mortgage purely for its tax advantages, but only if you can get a commercial return on the money you are borrowing.