Tax question about foreign house rental income & UK tax due

[gf15]

Hi All,
After a little info on behalf of a friend.

She was originally living in Ireland, but is now UK based and pays PAYE tax @ 40%. She is in negative equity position with the Irish house and even though she rents the house out, the rental income does not match the mortgage payments. The intention is that the house will eventually be the cornerstone of her pension.

What can she do to minimise her tax liability in the UK on the Irish rental income (Rental income is about £10k PA and she has already paid £3k on account to HMRC as she does not have a PW yet).
She is wide open to ideas. All suggestions would be appreciated.
Thanks in advance.

[Eric Mc]

Is she actually making a profit on the annual rent?

In other words, do the costs of running the property exceed the rental income she is receiving on the property.

The major costs that she might have would be -

repairs and maintenance

agents' fees

mortgage/loan interest (note it's only the interest element that can be offset, not the whole mortgage payment - unless it is an "interest only" mortgage

rates/council tax/water charges or their Irish equivalent

insurance costs met by the landlord

certain (but not all) legal costs

Does she currently complete a self assessment tax return?

[gf15]

Hi Eric,
Responses below:
Is she actually making a profit on the annual rent? GF: No, rental income £12k, repayment mortgage costs £15k. Running costs are circa £2k PA.

In other words, do the costs of running the property exceed the rental income she is receiving on the property.

The major costs that she might have would be -

repairs and maintenance GF: 2.5k last year (bad tenant)

agents' fees GF: N/A a friend does this.

mortgage/loan interest (note it's only the interest element that can be offset, not the whole mortgage payment - unless it is an "interest only" mortgage GF: Interest was £6k

rates/council tax/water charges or their Irish equivalent: GF: call it £1k

insurance costs met by the landlord GF: £800

certain (but not all) legal costs GF: N/A

Does she currently complete a self assessment tax return? GF: First one is for 2013 / 2014, paid on account in lieu of getting her PW from HMRC, effectively her first year working in the UK. Cheers

[Eric Mc]

I reckon she HAS made a profit on the rental income and she should pay tax on that profit.

Gross Rental Income - £12,000

Expenditure -
Repairs - £2,500
Mortgage Interest - £6,000
Rates - £1,000
Insurance - £800

Total allowable expenditure - £10,300

Profit - £1,700

Note that it is the INTEREST on the mortgage that can be offset NOT the full repayments

If she had a rental profit for tax year 2013/14, she should have included these figures and the profit on her 2013/14 self assessment tax return. If she didn't, she has submitted an incorrect tax return and will need to re-submit a "repaired" return.

[Eric Mc]

Forgot to ask - is the property in the Republic of Ireland or Northern Ireland?

[Alpinestars]

Eric Mc said:

Forgot to ask - is the property in the Republic of Ireland or Northern Ireland?

And don't forget to consider capital allowances/wear and tear allowance.

[sumo69]

Have you confirmed that she is actually resident in the UK for tax purposes?

Does she have to declare any rental profit and pay tax in Ireland?

David

[Eric Mc]

I assumed she was already making UK Self Assessment tax returns because the OP mentioned that she was making Payments on Account.

He still hasn't confirmed which "Ireland" the property is in.

[gf15]

Hi All,

Property is in Southern Ireland and she is an Irish citizen.
She has been fully resident in the UK for the last 18 months and working full time in the UK in an academic role. She is UK PAYE and this is the first time she has to do a tax return.
She is happy to pay her fair share of tax on what she has to, but does not want to pay any more than she has to. She is already paying tax @ 40%.
Many thanks for the responses so far.
GF15

Edited by gf15 on Saturday 14th February 17:47

[Alpinestars]

Has she been paying tax in Ireland? The DTA between the UK and Ireland gives taxing rights to Ireland, with a credit given in the UK.

[gf15]

Paid tax in Ireland up to about 3 years ago, when her contract finished, then came to UK, helped her Mum for 18 months through a difficult time, then got her current job.
Cheers

[Eric Mc]

Irish citizens living and working in the UK are taxed as if they were UK citizens. Guess how I know

I don't suppose she has paid any Irish tax on her Irish rental profits. If she HAS paid Irish tax, she still needs to declare the rental profits on her UK tax return but she will get credit for any Irish tax already paid - if any.

[Alpinestars]

Eric Mc said:

Irish citizens living and working in the UK are taxed as if they were UK citizens. Guess how I know

I don't suppose she has paid any Irish tax on her Irish rental profits. If she HAS paid Irish tax, she still needs to declare the rental profits on her UK tax return but she will get credit for any Irish tax already paid - if any.

I agree with the last bit. But I doubt the first bit is right when talking about property income. See Article 7 of the DTA.

[Eric Mc]

I was referring to her overall liability to UK tax rather than detailed computations of rental income for Irish properties. I would assume rental income on a property in the Irish Republic would be computed in the same way tax on a rental property in Spain or France would be.

Whatever, she should be showing this income in her UK tax return.

[LC23]

If she is non UK domiciled she firstly needs to establish whether she is filing on the arising or remittance basis.

[Eric Mc]

Do the normal UK domicile rules apply to Irish citizens? I thought that there was some exception to that included in the original 1921 Anglo-Irish Treaty.

[Claudia Skies]

Eric Mc said:

I don't suppose she has paid any Irish tax on her Irish rental profits. If she HAS paid Irish tax, she still needs to declare the rental profits on her UK tax return but she will get credit for any Irish tax already paid - if any.

^^^ This is the key point.

There are "double-taxation" treaties between most countries under which tax paid in one country counts as tax paid in another. It all needs to be fully declared to HMRC.

[LC23]

Eric Mc said:

Do the normal UK domicile rules apply to Irish citizens? I thought that there was some exception to that included in the original 1921 Anglo-Irish Treaty.

This changed a few years back Eric. You are right that Irish citizens were definitely excluded from the remittance basis in the UK and trying to remember I think it may have also worked the other way as well. I have 2009 in my head as the year things changed.

[LC23]

Claudia Skies said:

^^^ This is the key point.

There are "double-taxation" treaties between most countries under which tax paid in one country counts as tax paid in another. It all needs to be fully declared to HMRC.

It doesn't necessarily need to be declared. Non doms can claim the remittance basis.

[Eric Mc]

LC23 said:

Eric Mc said:

Do the normal UK domicile rules apply to Irish citizens? I thought that there was some exception to that included in the original 1921 Anglo-Irish Treaty.

This changed a few years back Eric. You are right that Irish citizens were definitely excluded from the remittance basis in the UK and trying to remember I think it may have also worked the other way as well. I have 2009 in my head as the year things changed.

Thanks for the clarification. The last time I had to check on this the old rules still applied, obviously.

This does imply that perhaps she should be returning the rental income on an Irish tax return and paying whatever Irish tax is due.

Edited by Eric Mc on Sunday 15th February 14:18