Taxation question wrt rental property income

[digger_R]

I'm thinking of buying a house in the Uk over the next few years, I'm in a position where I wouldn't require much of a mortgage (if at all). My main reason for buying would be purely for the rental income.

It would not be my primary residence as I generally live overseas and if I were to come back to the Uk I doubt I would live there anywhere.

My question relates to what kind of tax liability I would have if it were my only property and if I were 1.) tax resident in the Uk or 2.) tax resident in the EU/Canada.

I can envisage a situation in the future where I may move back to the Uk for some period of time so would want to know what my liabilities would be upfront.

Addtionally, how would that situation be affected by the presence of a mortgage or not? I'm currently in Germany which allows you to offset the interest paid against tax so was wondering if something equivalent exists in the Uk.

I've never owned property in the Uk so this is all relatively new to me, so please forgive me if these are noob questions.

thanks

[Eric Mc]

Are you a UK national?

In other words, were you born in the UK and do you hold a UK passport?

[digger_R]

Yes on both counts. I've been tax resident outside the Uk for a few years (though still within the EU).

[Eric Mc]

I was just trying to establish your tax domicile status. You are definitely domiciled in the UK - although it looks like you are a non-UK tax resident.

Whether you are in or not in the EU is irrelevant for UK tax purposes. What does matter is your UK Tax Residence status.

If you stay out of the UK for a complete tax year, you are not liable to pay UK tax on your income. However, if you receive rental income from a UK property, you are supposed to pay tax at source on that rent to HMRC. This "tax at source" system is usually administered by a tax agent in the UK, sometimes a rental agent, sometimes an accountant.

You should get tax relief in the country where you are currently a tax resident on the UK tax deducted at source subject to there being a Double Taxation Agreement between that country and the UK. This prevents you from paying tax on the same income twice.

Edited by Eric Mc on Thursday 26th March 16:29

[digger_R]

Awesome as ever, thanks Eric

[LC23]

Hi Digger

If you are non UK tax resident, you can complete one of these -

http://www.hmrc.gov.uk/cnr/nrl1.pdf

If approved, this means that you can receive the rental income gross without having to have tax deducted at source. It doesn't mean that no tax is due, as Eric has already said this is UK source rental income so will need to be reported on your annual tax return.