LeavingLondon

We are looking to rent out our property in the UK (to pay off our mortgage) whilst living in the US. I understand we have to pay Income/Capital Gains Tax on the rental amount in the UK. Do we need to also pay tax on it in the US (double tax?). By the timer we've paid all this tax, it'll barely cover the monthly mortgage repayments!

md95065

You pay tax on the rental income in the UK.

You report the rental income on your US tax return.

You take a credit on your US tax return for the amount of tax that you paid in the UK.

LeavingLondon

thank you!

N1cky

You can also claim depreciation for the house on your US taxes.

JAJ

If you are entitled to a U.K. personal allowance you may not have any U.K. tax due. It won't affect your U.S. taxes but it means you won't have to worry about foreign tax credits.

LeavingLondon

Thanks. If the house is in mine and my husband's name, who pays the tax on it? I'd prefer to pay it, being the lower rate tax payer.

joylove

As I understand it the country where the income is earned gets first dibs on any tax.

And so you would need to submit a UK tax return for the rent. Because you both own the house, one assumes you both earn the income. You both have a tax free income allowance in the UK of about £10k.

Then you need to submit in the US your worldwide earnings income, calculating the income tax and pay or be rebated any difference.

In the US you can file your taxes as a "joint" or a pair of "individual" filings. If you are not earning in the US, filing joint may take your partner's income tax down by a few percent. If you have kids you can file as "head of household" which bizarrely takes the tax percentage back up and over the individual rate by a couple of % again.

md95065

The IRS calls these options "married, filing jointly" and "married, filing separately".

Birt Tiddler

You can claim mortgage interest, repair costs and some other expenses as well as both personal allowances in the UK (as it seems jointly owned) FYI 2012-2013 allowance is 8,105 each. Dont forget to declare it here in US also so you're all squared away.
If this is your only UK income and both claim the allowance its likely you might pay any tax at all - and if you do probably only a little

TimNiceBut

I would also recommend to register with HMRC to receive the rent gross if it looks like one is unlikely to have to pay income tax on the rental income in the UK. Without registering and having sent the confirmation to the letting agent in the UK, the letting agent will have to deduct tax from the rental income.

LeavingLondon

Thanks, that's really helpful! This is all one big learning curve!

godisaclog

Hi Folks,

Interesting.

I think I'm in this situation. I receive rental income that is less than the monthly interest payments on my mortgage. In UK tax terms it's income that's entirely off-set by costs (never mind the additional rental costs I incur) - i.e. it loses me money. I'm not sure exactly what to do. Should I apply for getting the rent without tax deducted? Or shall I just instruct my tenant to deduct tax in the knowledge that I'll be able to get it back later via my reduced UK tax liability (i.e. I've had UK income this year before I move to the U.S. and will almost certainly have UK income next year after I return).

It all seems a lot of hassle for nothing and I'm considering whether its easier to have our UK tenancy done through my wife for whom it may be easier to remain as a UK resident/usual place of abode as she's not tied to a job in the U.S. and will be frequently in the UK over the coming year.

Or is it worth doing it properly and taking the hit up front (of tax being deducted) in the knowledge that I can off-set all expenditure against a tax bill somewhere else and I might actually be better off?

*confused!*

nun

Your tenant isn't the one to deduct the tax. If you employ an agency to manage the property they would deduct the tax or if the tenant pays you directly you would be responsible for paying the tax. You should decide whether you have to file a UK self assessment and/or talk to HMRC about your UK tax liability.

There are strict rules about tax residency and the scheme to get the income onto your wife's tax sounds a bit flaky to me.

If you are resident in the US you must declare the income from your UK property on your US taxes. You get to take lots of exemptions and depreciation and will get credit for UK tax. As ever doing things correctly is the way to go.