sky

I keep telling the hubby it would be a good idea to buy a property to let in this country as income in NZ but he not keen. We could buy a 2 bed back to back here in Leeds for about 70k but it would only leave us 20k as a deposit on a mort in NZ. I would kick myself if I made the wrong decision now because property always goes up in value and if we owned outright from the start we would be set to make a very healthy profit in the future.

HiddenPaw

My one piece of advice on this one would be to choose your rental agency carefully - find one that is an accredited rental agency (ARLA) - this way, they should be working to stricter guidelines and there is a governing body that you can report them to in case of malpractice.

My agency is a pile of s*** (and not accredited - sadly I found out about these things too late!). They charge me 12.5% + VAT of the rental income. I've had numerous problems with them not paying the rent on time, charging me for things I shouldn't be charged for, failing to notify me when situations change (like tenant wants to move out).

It has been really stressful the whole time we have been in Oz trying to deal with the agency. Fortunately, we're going back to UK in 5 weeks so, apart from the fact I now have to take them to court for failing to pay rent after they let a tenant leave on 9 days notice, I am taking the property back from them.

Good luck

Alan Collett

The income tax and capital gains tax issues have been discussed already, but (and without wanting to be too pessimistic by bringing in the issue of death), don't forget the issue of Inheritance Tax liability in the UK as well ... IHT is due on UK real estate even if you aren't domiciled in the UK, and becomes an issue once your estate is valued at more than the nil rate band (currently £255,000).

To re-iterate, IHT is based on your domicile, not your residency, and domicile is a much more enduring concept - it can last for many years after you have moved overseas. Being a UK domciled person means that your worldwide estate then becomes chargeable to UK IHT.

The practical issue which usually flows from this is that if you have no UK estate your executors will not have a need to seek probate in the UK, but if you have real estate in the UK your executors would have to obtain probate before the property can be dealt with in accordance with your Will. And if they are seeking probate they would then have to advise the IR of your worldwide estate.

Note also that the exemption for gifts from one spouse to another is limited to a maximum of £55,000 if the spouse is not domciled in the UK.

IHT tends to be overlooked ... but shouldn't if you have a sizeable estate.

Also don't forget the Withholding Tax that is payable under Australian tax law if you are a resident borrower paying interest to a non-Aussie resident lender (I'm not sure about the position in NZ) - subject to the passing of the new UK-Australia Tax Treaty.

See also the attached factsheet.

Best regards.

Alan Collett

The form to complete if you want your rental income paid to you on a gross basis is form NRL1 ... see the attached.

Best regards.

WheelsOfSteel

When you want to sell make yourself tax resident in a more favourable CGT country and make sure you have been out the UK for 5 financial years... if you can.

Forget trusts aswell as unless you own the property outright, the mortgage company will never allow it.

Presumably, if you have very little of your own capital in the property upon your death, any Inheritance Tax can only be calculated on the gross sale amount less mortgage?

Alan Collett

As noted previously IHT is based on your domicile status.

If you are UK-domiciled you must look at the value of your worldwide estate (which is net of loans secured on the assets in question), including the value of gifts made within 7 years of death.

Gifts made in the period within 7 years of death are usually what are called Potentially Exempt Transfers and are to be included in the estate of the deceased

Tapering relief applies to the tax liability arising if you die within that period, as follows:

- If you die within 3 years of making the PET: 100% of the tax on the PET is payable
- 3 to 4 years: 80%
- 4 to 5 years: 60%
- 5 to 6 years: 40%
- 6 to 7 years: 20%

Many people I have met over the years and with whom I have discussed IHT take the view that its not an issue they need to address as they won't be here to worry about the tax. However, I am of the opinion that it is preferable for as much of one's capital as possible to be passed on to the surviving spouse and/or the children - and I re-iterate here that if the deceased has a non-UK domiciled spouse there is a limit that can pass to the spouse on a no-IHT basis.

With real estate in particular you can soon find yourself with an IHT exposure, particularly if (for example) you have taken life cover to pay off the mortgage on death and haven't written the life policy in trust ...

Best regards.

Alan Collett

I am re-attaching the factsheet mentioned in an earlier posting, as I gather some have had a problem downloading it.

Other factsheets are available here:
http://www.collettandco.com/factsheet.cfm

Best regards.