HelenLancert

Hello,

I currently have a property in Hungary (Pécs) that I live in. However, I will be moving back to the UK for good by September 2017 and have the following questions.

1) If I want to rent out the property, what are the EXACT steps to follow with the Hungarian tax authorities? Do I need to request a Hungarian Tax ID number/code, then set up as a Self-Employed person and fill out a yearly tax return? Or is it more straight forward than that? Plus, how much would the tax be?

2) If I buy a second property to rent out also, does this change things with the tax authorities? Do I pay more tax, get a tax discount on the second rental?

3) If I decide to live in one property and rent out the other, what is the story then?

Thank you in advance.

Helen

yamyamsam

I'm sorry I cant answer your questions - but may I ask why you are moving back to UK?

wolfi

Just one remark re renting:

It can be very difficult - wouldn't it be better to sell?

HelenLancert

I am in a little dilema to tell the truth.

On one hand I have old age problems such as diabetes, cold weather in the winter not suiting me, have family back home (grandchildren) who could do with seeing me more often rather than me taking expensive airline tickets during the holidays only, etc. If I move back home with my pension and live with my daughter, I get to keep all the pension (of course I will help my daughter with her bills, etc).

On the other hand, if I stay in Hungary it works out I pay more. One reason for enquiring about rental income.

Btw: Is selling a House easy in Hungary? Or does it take a lot of red tape and ages to sell?

fidobsa

How easy it is to sell your property depends largely on location. There is always demand for property in and around Budapest and I'm told that houses near Balaton are selling well at the moment. I have my house up for sale at the moment and my agent speaks English and covers mainly the Balaton region. If and when it sells I will let her deal with as much of the red tape as possible.

Peter_in_Hungary

Problems of old age can be mitigated. Problems of diabetes can be reduced (sometimes eliminated) by weight reduction and diet. White flour, sugar, processed food and a lack of veggies all contribute to health issues. Of course it may be that you already have a healthy lifestyle - getting old sucks !! And yes I can see that being close to family has big advantages.

If you want to rent out your property you will need a tax number but you won't need to be self employed, but tax forms will be needed. Is your Hungarian up to speed to enable you to manage these?

Pécs is a university town so renting to students is a possibility if your property is suitable in type and location, but renting out property from the UK is likely to have its problems and probably not too viable without a letting agent but that will eat into any profits.

When renting property I believe the tax is 20%, and renting out one or more doesn't alter things. I would advise you talk to a letting agent (even if you decide to let under your own steam) as they will be able to advise you of the exact details and give you a better idea of possibilities and costs.

Selling a house here is fairly straightforward, usually the buyer pays the legal cost and if you have not owned the property for 5 years then there may be tax to pay. Again an agent will advise - even if you just make inquiries and don't use them in the end. Selling property is about location and then price. get them both right and it can be quick, unfortunately the first one, location, can only be arranged when you buy the property.

HelenLancert

Thank you for the advice. I am lucky (I think) in that my property is between the university and the shopping district, so should suit a student very well.

After reading Peter's comments I will investigate the tax option more closely. I am trying to avoid using a letting agent because, as Peter points out, their fees will eat into any profit I make. However, that would mean having a neighbour watch over the property from time to time while I am in the UK and/or me visiting Hungary from time to time.

Peter - Are you saying or implying that after ownership of 5 years or more you do not pay tax when selling a property? If this is the case, that would solve my problems because the tax saving would make it worth selling.

rammy100

I have rented out property in Hungary whilst living overseas and I can categorically say that you need a letting agent or a reliable local person who will deal with any emergencies because I guarantee they will happen.

Don't dream of dealing with it alone as it is leads to a very stressful time if you have an angry tenant to deal with. As a tenant I wouldn't rent a place where the only contact was 1500 miles away.

I have always had better service from a small agent, neighbour and friend rather than a bigger agent. They tend to charge the earth, promise the world and deliver nothing.

I once offered a reduced rent to a tenant on the understanding that she would handle any issues that arose. I knew her well and that she was reliable by that point though.

A quick Google search lead me to this article about Hungarian Taxes, including Capital Gains Tax.

Whilst you may not have any CGT to pay in Hungary, if you are Tax resident in the UK during the year of the sale, you may still have UK CGT to pay.

HelenLancert

Thanks for that rammy100, it has been of great help and cleared up a couple of issues for me. I think I will take the renting route using a smaller, local, agent for the meantime while checking out the CGT on a foreign property.

Thanks again, rammy100.

HelenLancert

Just been contacting a few agents who state they charge between 10% and 12% of the annual rent or the equivalent of 1 month's rent out of 1 year. On top of this, they charge separate fees for property management.

So based on the equivalent of £200 per month rent (£2,400 per year), their 10% would be £240 just to find a tenant based on my vetting requirements (i.e. non-smoker) and the signing of a tenancy agreement!

Furthermore, if I wanted the property looked after it would cost 1 month's rent (their commission) plus 10% for the property management (i.e. change of lock once a student has left). Is this "normal", cheap, expensive? Would you pay those rates? Or am I just being tight-fisted.

Alcogod

10% is pretty typical everywhere. Most will have a monimum amount however which you have to pay if the 10% does not cover it. I think its pretty reasonable as they then deal with crazy tenants and you can sit back and relax, they may only contact you if something needs repairing.

HelenLancert

Thanks Alcogod.

So with the tax side of the story, what do you ACTUALLY pay? 15%, 16% or 20% of profit made or is that on any amount made? Still confused to the exact tax rate as different websites give different information.

Also, would I need to contribute anything else to the government in general, as a tax payer, such as towards government education? Again, confusing stories I have read on the internet.

Peter_in_Hungary

If you have already talked to a few letting agents, then talk again to the one you liked best and ask about the tax situation. They should be able to tell you exactly what is due and what is deductible. E.g. their fees and repairs should be deductible, however for private landlords you can not carry over expenses to the following year so any expenditure can only be set against tax in the year of that expenditure.

You will also need to agree some sort of authority for repairs. e.g. I would not expect the agent to have to contact you for permission to change a broken light switch, but a limit beyond which your authority is needed needs to be set. You will need an agent or someone you can trust to manage the property but I would not expect that the 10% management charge would be the only charge. Disbursements may well be additional costs, e.g. international phone calls, out of hours calls from tenants, supervising or arranging repairs, more than x number of site visits etc.

Ask the agent what is the usual practice - which means what they like to do - and get a detailed information as to what is included in the charges so that there are no surprises at the end of the year.

Is the property a house or a flat? often flats will have a caretaker who is the external contact point for the bock(s) of flats. If this is the case this person may well undertake some sort of management role for your flat for an extra fee. (the caretaker will already receive a stipend for his role)

I am sure that if you own a property for more than 5 years then there is no Hungarian CGT, but the estate agent should be able to confirm this. To avoid UK CGT you will have to look at the UK CGT rules and allowances and perhaps time the sale of your Hungarian property and your return to "UK residency for tax purposes" to minimise any UK CGT liability. Again professional advice could save a lot of money.

rammy100

The fees that you've been quoted seem par-for-the-course but have you considered trying to find your own tenants? If you have a regular turnover then your agent will quickly eat into your profits and they are not guaranteed to be as choosy as you might be.

Do you also need to have the locks changed after each tenant? I have rented a lot over the years and have never done this, and have had no problems.

I don't know the rental costs in Pecs but £200 per month for anything seems quite low to me. If this is the going rate then after your costs are deducted you are left with very little profit. Once you have added in wear-and-tear (if you rent to students, there will be some) I would question whether it's really worth the time and effort.