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The problem of still owning UK property - Non Resident Witholding Tax

The problem of still owning UK property - Non Resident Witholding Tax

Old Mar 16th 2019, 10:29 pm
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Default The problem of still owning UK property - Non Resident Witholding Tax

Morning

Thought id share this, as I wasnt aware until seeing an accountant for some work. Perhaps its common knowledge though?

If you still have property in the UK and making mortgage payments to a bank there you are liable to pay 10% Non Resident Witholding Tax in NZ on the value of the interest payments. It may be possible to reduce this to a 2% rate by applying for Approved Issuer status.

Theres 48 months grace when you first arrive as a transitional resident (I’m well over that now) but from then on tax is due.

This NRWT is in addition to any tax due on the income made if renting out.

Perhaps I should have known but Im now looking at having to make a voulantary disclosure and fairly substantial tax payment covering the past 4 years or so.
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Old Mar 16th 2019, 10:47 pm
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Default Re: The problem of still owning UK property - Non Resident Witholding Tax

The rules changed a couple of years ago about owning property if you do not live in UK so people do need to check regularly on any changes, tax or otherwise as to the status.
also seems that there is going to be another change in 20/21

Last edited by MrsFychan; Mar 16th 2019 at 11:01 pm.
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Old Mar 17th 2019, 9:39 pm
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Default Re: The problem of still owning UK property - Non Resident Witholding Tax

Hi Madao,
Good post and thanks for raising this issue. Its a tough one to get your head around - paying tax on mortgage interest just makes no sense! It's a terrible quirk of the tax system but unfortunately true. As I often say, tax is a complex issue, seek advice as early as possible so that you are aware of your obligations and can plan accordingly.
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Old Mar 18th 2019, 3:01 pm
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Default Re: The problem of still owning UK property - Non Resident Witholding Tax

Thanks for highlighting this issue.
One of the many financial issues I need to add to my list before we emigrate as we have a BTL property in the UK.
As a matter of interest chc4me, would it be a NZ expert that we talk to re financial issues, or would someone in the UK be able to advise? We have pensions, BTL income (although I would like to sell the UK property after a couple of years and buy and investment property in NZ) and a stocks and share ISA.
Thanks a lot
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Old Mar 18th 2019, 11:30 pm
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Default Re: The problem of still owning UK property - Non Resident Witholding Tax

Hi Hallie_day,
If you can seek advice in the UK from a specialist that knows the tax laws in both countries, then it would be worth sitting down with them before leaving. They may raise issues that you are not aware of before leaving, or help you complete a tax return to reclaim tax at time of leaving. Alternatively, you could contact a NZ tax specialist and put your case to them for their view.
Pensions: this might depend on the type of pension that you have. If it is a Defined Benefit scheme then it will depend on which provider. Always need to be careful about the motivation of the person giving the advice and to make sure that the advice is appropriate for your situation. I'll send you a PM on this topic.
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Old Mar 19th 2019, 3:27 am
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Default Re: The problem of still owning UK property - Non Resident Witholding Tax

Originally Posted by madao View Post
Morning

Thought id share this, as I wasnt aware until seeing an accountant for some work. Perhaps its common knowledge though?

If you still have property in the UK and making mortgage payments to a bank there you are liable to pay 10% Non Resident Witholding Tax in NZ on the value of the interest payments. It may be possible to reduce this to a 2% rate by applying for Approved Issuer status.

Theres 48 months grace when you first arrive as a transitional resident (I’m well over that now) but from then on tax is due.

This NRWT is in addition to any tax due on the income made if renting out.

Perhaps I should have known but Im now looking at having to make a voulantary disclosure and fairly substantial tax payment covering the past 4 years or so.


The situation is more complex, but I would suggest more logical than you realize, and definitely something that you need professional advice about.

The NRWT is not a tax that you are (supposed to be) paying out of your pocket, it a portion of the interest you are paying (to the mortgage lender) that you withhold and pay to the NZ taxing authority. I am not sure how a bank in the UK will handle being told that of the £7,400 in interest you owe them for 2019 you paid £740 to the Kiwis, but obviously this is not a particularly unusual situation, so the bank is going to be well aware that this witholding requirement exists. ... The result of this is that for the arrears that you pay the Kiwis, you will, I presume be able to claim it back from the mortgage bank that you paid the interest to.

The part of the cycle that you don't see, is that your mortgage bank will be able to use the "tax credit" they receive (as a result of you witholding tax due to the Kiwis), against their tax liability in New Zealand, including the withholding that they are required to make on interest paid in NZ (on borrowings, deposits and/or bonds held by residents of NZ). In other words, you withholding part of the interest on your mortgage interest is the same as your bank "witholding" tax on interest on your bank deposit and paying it to the tax man, so your 2% gross interest income on your deposit is, say 1.8% net, with 0.2% withheld, which is used in part or whole to satisfy your income tax liability on your interest income.

Last edited by Pulaski; Mar 19th 2019 at 3:37 am.
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