Tax on House Rental while Living Abroad?

[AshVX220]

Hi all. Hopefully someone will be able to help me out with this one.

It looks likely that I'm being sent to work away for a few years, as such I'll be renting my UK house out. My wife will be giving up her job so no income for her.

Now, we have a joint mortgage (obviously), and [I guess] will have to pay income tax on the rent we receive for our home in the UK. So, with my wife not working, would we only pay income tax on my half of the rent we receive, as my wife won't pay tax on what she earns up to a certain amount (she won't be earning anything). Or do I have to cover the income tax for the whole of the rent (I pay 40% tax if that makes any difference at all).

We've looked at the .gov web page for tax on rent, but it isn't actually very helpful with the above scenario and does use a lot of terminology I struggle to get my head round.

Any advice or help would be greatly appreciated.

[AshVX220]

Jefferson Steelflex said:

Assuming you are working for a decent company, any expat package will include tax advice. If it doesn't, make it part of your package because you will absolutely need to have proper tax planning while you are away.

I was moving to US last year (fell through in the end) and I was offered the services of a tax accountant as part of the package. You shouldn't need to be worrying about such matters, which to answer your question are quite complicated and need the services of a professional.

Hi there, I work for a pretty big multi-national company, so Imagine there'll be something there, I haven't yet seen the full package other than the allowances etc we get, so I guess there'll be a tax expert on hand for us. My wife's a part qualified accountant (but not tax) and as such is trying to figure everything out to make sure we can afford it, I sure we can, but am trying to ease her mind. Thanks for the reply.

[AshVX220]

Jockman said:

Will you need to tell your mortgage provider?

Yes, and we will do, I think from the literature we have they increase the rate by 1% or something, we're pretty comfortable with that side of things, it's just the income tax on the rent we get that we're unsure of, particularly as my wife won't be working.

[AshVX220]

Eric Mc said:

Is the property (not the mortgage) in joint names?

Hi Eric,
I think so yes, I'll need to check, but I'm pretty sure it is.

[AshVX220]

SwissJonese said:

Also depends what country you move to I think. From memory of us living in Switzerland we rented our flat out, the income was split between us (joint owners and mortgage). We declared our rental income to UK authorities and as it was in the allowance before tax (for each of us) so we paid no tax.

We had an accountant in Switzerland provided by my employers and also declared the income that we gained from UK. As this was income derived from the UK and we declared it to UK Authorities plus paid no tax then the Swiss Tax authorities didn't charge us anything (they just like to check where any other money is coming from).

Heading to the US if it helps people here.

[AshVX220]

Eric Mc said:

AshVX220 said:

Hi Eric,
I think so yes, I'll need to check, but I'm pretty sure it is.

That means that half the rental profits will be taxed as being your wife's income - not your's. So at least that amount would probably be covered by her otherwise unused personal tax allowances.

Yes, that's what we're thinking and hoping would be the case, at least that will reduce our tax by half.

[AshVX220]

LC23 said:

You will want to check the package being offered to you by your Company. Have they mentioned tax equalisation at all? Some companies will include this on personal income as well (not many these days) so the actual UK and US tax position may be a bit of a red herring.

As already stated, check that tax advice/support is covered and make sure it is being provided by a firm that actually knows what they are doing in this area.

What I happens with my salary is that it gets split, so some is paid into the UK in GBP and some is paid in the US in USD. So he income tax will be taken car of for my salary and then we have to do tax returns in the US (as all US citizens do I think), not sure how often we do that though yet. Our big concern is the tax to be paid on our rent. I've just found out we get a tax briefing as part of our package and I expect this will be covered in that brief. My wife's just trying to figure things out now so that we can make an early decision on the affordableness (if that's a word) of the move. She worries about stuff like that!

[AshVX220]

If it helps any, the money we'll get in rent won't cover our mortgage payments, but I don't think that matters, we still pay tax on the rent coming in.

[AshVX220]

LC23 said:

Which is why you need to understand whether tax equalisation is being implemented or not and, if so, whether it will also cover personal income.

US tax returns must be filed annually (Federal, State and possibly City/local returns). Some States do not have State tax however so no filing due there. Normal filing deadline is April 15th although extensions are possible. I assume the tax provider will be filing your US returns for you?

Also, if you become US tax resident (I assume you are not a US citizen or Green Card holder) then you will pay US tax on worldwide income.

Edited by LC23 on Tuesday 26th July 13:13

Ah, interesting, thanks for all of that. I won't be a green card holder, but I think I'll be a US tax resident, I know colleagues who are already there do annual tax returns. We're going to Florida. Haven't heard of tax equalisation, so will need to find out more about that too.

[AshVX220]

Countdown said:

You can only offset the interest part of the mortgage against your rental income, not the capital repayment.

Yeah, thought that was the case.

[AshVX220]

LC23 said:

Well one bit of good news is there is no personal income tax for Florida! So that removes that layer of tax for you.

Wow, what?!?!? So I won't pay income tax on my salary? Damn, that would be awesome! Just tax on purchases?

[AshVX220]

LC23 said:

Hold your horses there cowboy (OK you aren't going to Texas but anyway). State income tax yes, there is still Federal income tax. Plus you still don't know how you are actually going to be taxed as you haven't checked the tax equalisation point.

Ah, right gotcha. Damn, I got all excited there!

Thanks very much for taking the time to reply here, it's very much appreciated, just need to find out the tax rates now (federal) and the equalisation thing.

[AshVX220]

V41LEY said:

As said - any overseas move should come with free access to tax experts. If not negotiate. In our case (Singapore), we were paid locally, so only had rental income as income in the UK. Don't think it was enough to attract additional tax. Don't forget you can deduct management fees, insurance, repair costs etc. Think we registered as non- residents as well.

Excellent, cheers V41LEY. We will have access to a tax expert, I'm just trying to ease my panicking wife's mind!

[AshVX220]

superlightr said:

you will also be liable for NRL tax (non resident landlord tax on the rental) income less expenditure unless you/agent/tenant are and are granted an exemption certificate. form NRL1 from HMRC this is in addition to all and any other taxes. will take 1 month to process

Isn't that what I mean by income tax on my rent, or is that in addition to income tax on the rent?

[AshVX220]

Eric Mc said:

In some cases, agents are instructed to deduct 20% tax from the GROSS rentals they collect. You will get a credit for this against any actual tax liability arising from the rental profits.

Thanks Eric, what if I'm not going through a rental agency (it currently looks like a family member may rent our house off us, negating the need of getting an agency involved.