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Tax Advice Renting Out UK House

Tax Advice Renting Out UK House

Old Dec 3rd 2015, 4:20 pm
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Default Tax Advice Renting Out UK House

Hi, wondering if anyone has some advice on renting UK property while living in NZ.... This will be the first time I've ever rented out my house, so looking for some advice on what I should expect.

Having lived in NZ for 3 years, I have read that we have 4 years before we pay tax on overseas rental earnings, is that correct?

Also, once it does kick in, does anyone know what % would be required in tax?

I think it would bring in around £12k per year in rental income as a guide.

Any advice and what to look at would be fantastic!
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Old Dec 3rd 2015, 5:14 pm
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Default Re: Tax Advice Renting Out UK House

You don't have to declare the income from overseas (there are some exceptions) in NZ for the first four years. Then you complete a tax return for the IRD which works out how much tax you pay. It's added to your income to provide a tax rate so the amount you pay depends on what your other income is. You can find the tax bands on the IRD site.

I believe there have been some tax changes in the UK, so keep all receipts so that you can complete a tax return when you sell in case you have to pay capital gains (which you probably will). You will be doing returns for the income in the UK anyway. It may come in under the tax free allowance once expenses come off the total.
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Old Dec 3rd 2015, 5:26 pm
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Default Re: Tax Advice Renting Out UK House

Thanks jmh

Although some of that went over my head, it is reassuring. One thing though, UK tax changes, do you have any more info on that and how it would impact me?
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Old Dec 3rd 2015, 6:01 pm
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Default Re: Tax Advice Renting Out UK House

you need to gain approval of your mortgage company and get your mortgage changed, you also need to get landlords insurance on the property, which covers the normal stuff as well as rent arrears, legal fees cover for contract disputes and repossession as well as malicious and accidental damage so not just the normal house and contents insurance.
you also may have to pay tax in the UK on the income not just in NZ.(the rules in the UK changed April this year so you need to really look at that).

Last edited by MrsFychan; Dec 4th 2015 at 7:32 pm.
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Old Dec 4th 2015, 10:21 am
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Default Re: Tax Advice Renting Out UK House

Originally Posted by dlmurray View Post
Hi, wondering if anyone has some advice on renting UK property while living in NZ.... This will be the first time I've ever rented out my house, so looking for some advice on what I should expect.

Having lived in NZ for 3 years, I have read that we have 4 years before we pay tax on overseas rental earnings, is that correct?

Also, once it does kick in, does anyone know what % would be required in tax?

I think it would bring in around £12k per year in rental income as a guide.

Any advice and what to look at would be fantastic!
We rented out our uk house for the first time when we arrived in NZ March 2012. The tenant at the time moved in April 2012 on a 12 month fixed contract that we extended 6 months till October 2013. We then tried to sell but for one reason or another didn't so in June 2014 rented it again for a fixed 12 months. We put it up for sale again just prior to the end of that rental contract and sold it to the tenant October this year.

There's a heap of stuff to do before you can rent your property out and a rental management company will go through all this with you. Once you've done these things youll be good to go. You don't need to do everything too early as things like landlords insurance, gas and electrical safety certificates can be arranged quickly once you have a signed rental agreement. The tenant wont be moving in the same day so take your time and use the week or so period before they move in to finalise all the essentials and provide the evidence to the management company.
Up front youll pay around £500 plus VAT for the management company to set up an account and do an inventory of the property with pictues etc. Remember, the least stuff you leave in the less risk of you being called to arrange and pay for repairs. Theres a list of mandatory stuff youll need to leave like a working oven, hob, dressed windows etc but dont go mad leaving everything for the tenant as you are liable if it goes wrong. When the management company find a tenant youll pay a finders fee of maybe £300 + VAT. This is abouy all you pay up front to the management company.
Per calendar month you'll pay around 10% + VAT per month for the management fee of the property. This will be deducted from the rent paid and you will receive the net profit.
Always make sure you are adequately covered on a good landlords insurance policy. I'd recommend rental income protection cover as an addition which is around £2.40 per £100 of rental income + IPT per month and also rent arrears protection/eviction protection whatever you wanna call it just in case you have a difficult tenant who doesn't wanna pay but also doesn't wanna leave. It happens so just be aware. If you do everything right and don't try to cut costs and corners you should be fine as it'll be the rental management company's job to check references and vet a potential tenant / do a credit check etc.
Since you'll be in NZ you must use a rental management company to oversee the whole process.

Before you rent your property out you can apply to HMRC to have all your rental income paid tax free in the UK so if they approve HMRC will send a note to your rental management company and inform them not to deduct any tax. This'll save you 20%.
It is correct that you also do not have to declare any overseas income to NZ IRD for 4 years after initial arrival date. Once you do hit this timeline you "should" declare the income and it will be taxed at the appropriate rate when added to your NZ income.
You also "should" tell your UK mortgage provider that you wish to rent out your house. We didnt and got away with it. You are obligated to tell the financial investor in your home if you read the mortgage t's & c's and you will also find reference to this in your tenancy agreement with your management company. At no time will you have to provide evidence that you have done this but it is a requirement and you will be signing a declaration to say you have done if appropriate. Like I said. We skipped that bit after moving to an interest only mortgage a few months before migration and renting it out. Doing it this way meant we remortgaged but we were able to borrow more to give us additional finances for the move and meant we were paying rock bottom for the mortgage but getting double what the mortgage cost in rent.
Yes we should have told the mortgage company and moved to a Buy To Let product but we were worried about the costs at the time so took the chance to stay as we were.

It's not all that complicated of a process really and I think I've still got all the documents on email if you wanna know more.

You can always pm me if you like.
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Old Dec 5th 2015, 2:35 am
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Default Re: Tax Advice Renting Out UK House

Originally Posted by dlmurray View Post
Thanks jmh

Although some of that went over my head, it is reassuring. One thing though, UK tax changes, do you have any more info on that and how it would impact me?
The changes I was referring to are around capital gains. I believe that the timeframe has changed on this so you may be liable to pay tax on any increase in the value of the property when you come to sell the house (this is not related to income tax or rental income - I think it also applies if the property is not your main residence). You can deduct the money you spent improving your house in that time, and the interest cost of the mortgage from the amount you have to declare.

My mortgage co, Nationwide, didn't require any changes from me when I let the property, but this could be because I was a long-time customer, had quite a low mortgage, plus it was a variable repayment mortgage which tend to have fewer restrictions.

You do need to get landlords insurance. When I compared the market some of the landlord insurance packages were cheaper than my current insurer!!! Having said this, it probably will be more, but not by much. I did have to make a claim over a major plumbing problem which cost GBP1000, and which they paid back, so definitely worth it.
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Old Dec 5th 2015, 1:55 pm
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Default Re: Tax Advice Renting Out UK House

Thanks everyone for all the help and advice, you've been brilliant.

escapedtonz, I'll PM you if that's ok.

Thanks again:-)
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Old Dec 5th 2015, 3:32 pm
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Default Re: Tax Advice Renting Out UK House

Originally Posted by jmh View Post
The changes I was referring to are around capital gains. I believe that the timeframe has changed on this so you may be liable to pay tax on any increase in the value of the property when you come to sell the house (this is not related to income tax or rental income - I think it also applies if the property is not your main residence). You can deduct the money you spent improving your house in that time, and the interest cost of the mortgage from the amount you have to declare.

My mortgage co, Nationwide, didn't require any changes from me when I let the property, but this could be because I was a long-time customer, had quite a low mortgage, plus it was a variable repayment mortgage which tend to have fewer restrictions.

You do need to get landlords insurance. When I compared the market some of the landlord insurance packages were cheaper than my current insurer!!! Having said this, it probably will be more, but not by much. I did have to make a claim over a major plumbing problem which cost GBP1000, and which they paid back, so definitely worth it.
The calculation is a bit tricky, but one problem you might face is that you are taxed on a proportion of the gain between you buying and selling, not on the apparent gain after you moved out. For example (simplified) if you bought a house ten years ago for £100,000 moved out eight years later when it was worth £300,000, but because a major road was built nearby when you came to sell it today, two years after you moved out, it was still worth £300,000, you would pay tax on 2/10 x (£300,000-£100,000) even though it hadn't gained in value at all while you were renting it out. ...... There are several other things that adjust the taxable gain, including (as mentioned above) capital improvements, and also an adjustment for inflation.
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Old Dec 5th 2015, 7:41 pm
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Default Re: Tax Advice Renting Out UK House

Thanks Pulaski, that's a worry - do we know if it is 4 or 5 years for the tax break after you have left the UK?

Also, has anyone still got UK property they are renting after living in NZ for >4 years?
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Old Dec 5th 2015, 8:09 pm
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Default Re: Tax Advice Renting Out UK House

We're still renting, nearly five years in, but we're thinking about selling soon. You get three years "grace" from HMRC before you're liable for CGT. There are other allowances such as length of time it was your main residence and personal allowances. Definitely recommend reading the HMRC website.
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Old Dec 5th 2015, 8:11 pm
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Default Re: Tax Advice Renting Out UK House

Originally Posted by dlmurray View Post
Thanks Pulaski, that's a worry - do we know if it is 4 or 5 years for the tax break after you have left the UK?

Also, has anyone still got UK property they are renting after living in NZ for >4 years?
https://www.gov.uk/guidance/capital-...-workout-gains

Here the information you need - they don't mention a tax break so there may not being any at the UK end any more. Used to be four years, but I thought it had come down to three. I don't see any mention of it in the link which implies there is no break at all - I would give them a call and check. Don't forget, you get your tax-free allowance on total income including capital gains.

Don't get confused with the 4 year NZ tax break. You are still liable to pay tax on income earned (including rentals) in the UK in that four years.
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Old Dec 5th 2015, 8:25 pm
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Default Re: Tax Advice Renting Out UK House

jmh, thanks, and yes I was getting confused as I thought being a non UK resident gave exemption from the UK 20% tax.... and was thinking that the allowance would cover any income anyway.
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Old Dec 5th 2015, 9:14 pm
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Default Re: Tax Advice Renting Out UK House

Originally Posted by dlmurray View Post
Thanks everyone for all the help and advice, you've been brilliant.

escapedtonz, I'll PM you if that's ok.

Thanks again:-)
Yeah anytime.
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Old Dec 5th 2015, 9:29 pm
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Default Re: Tax Advice Renting Out UK House

Originally Posted by jmh View Post
https://www.gov.uk/guidance/capital-...-workout-gains

Here the information you need - they don't mention a tax break so there may not being any at the UK end any more. Used to be four years, but I thought it had come down to three. I don't see any mention of it in the link which implies there is no break at all - I would give them a call and check. Don't forget, you get your tax-free allowance on total income including capital gains.

Don't get confused with the 4 year NZ tax break. You are still liable to pay tax on income earned (including rentals) in the UK in that four years.
As far as I know it has never been four years, but has been three. I think it has come down to 18 months. The way the taxable proportion is calculated is "the period of ownership less the period you actually lived in it, less any period you were deemed to have lived in it, such as when your employer sends you to work overseas, which is hughly important for many BE'ers, and less the last 18 months (I think)" ...... I am sure there are other excluded periods, and the HMRC web site should list all of them, but the biggest ones are the periods of actual and deemed occupation.
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Old Dec 6th 2015, 8:48 pm
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Default Re: Tax Advice Renting Out UK House

Originally Posted by jmh View Post
https://www.gov.uk/guidance/capital-...-workout-gains


Don't get confused with the 4 year NZ tax break. You are still liable to pay tax on income earned (including rentals) in the UK in that four years.
If you are tax resident in NZ, income tax is NOT payable in the UK due to the 'Double Taxation' agreement between the two countries. (apologies to JMH).

You should also check that you have not 'broken' your 4 year tax free window, which is called Transitional Resident exemption. It can be 'broken' by receiving benefits (e.g Working for Families tax credits) or the start date could be earlier than expected, often due to arriving in NZ earlier than your permanent move.

Please please please go and obtain tax advice!!! There are a lot of "ifs, buts and maybes" and each persons situation is different. For an hour of an Accountants time, you can check your situation and facts to ensure there is no nasty surprises. Make sure you find an accountant that specializes in dual country taxes.
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