daveyboy1984

Hi, me and my wife are moving to the US in November.

We are looking into renting out our property in London. At first we wanted to just rent to friends as opposed to having to change our mortgage and go through official channels, etc, but the more I look into this the more I feel it might not be the best idea!

Has anyone done this who can give me some advice?

I've read that sometimes your mortgage broker will let you rent out the property without an additional fee, but I believe this is probably quite rare. I'm sure they will try and cash in. On the flip side though - if anything went wrong with having friends in, then we will have breached our terms and won't be covered.

Be good to get an idea of:

1) Whether you were charged to change to a Buy to Let by your bank, or if you even needed to? What if they say they won't let you - or does this not happen?
2) Did you need Landlord Insurance? Is this a lot? (We have a 2 Bed terraced property in London)
3) If you went through a Letting Agent, how much do they normally charge?

It's tempting to just have friends move in and not tell anyway, but I know if anything went wrong that it could be a nightmare. However, we can't really afford to still be paying loads of money out in the UK when we are not there. All fine if the rent will cover it, but I doubt it will.

Any advice would be great.
Thanks

AndyMan74

My wife and I are in the process of going state side and are in the same position as yourself as far as renting goes.

1) I have contacted my Bank about renting and not a thing will change apart from telling them in a letter.

2) Landlord Insurance was only a bit more than regular insurance so that should not be a problem.

3) I've asked a few letting agencies about this and its around about 10% of the rent but for that they sort everything or you can pay a one off fee for them to get someone in your property(background checks and deposit) and then its up to you to maintain it etc.

ubernathan

We rent out our UK house.

Mortgage company was fine. Just required us use a letting agent

Hired a letting agent to deal with tenant find/vetting/etc

Landlord insurance, as you say.

File a non-resident UK tax form, so the letting agent doesn't deduct basic rate income tax. Can't remember the exact details, but I think this is in addition to the regular non-resident notification.

File UK tax return. Report income & any UK taxes on US tax return.

ubernathan

I recommend having them manage it ongoing for 10%. Then when the gutters leak or washing machine breaks, you don't have a problem. They should also do regular inspections to make sure the place is being well kept.

Pulaski

If you sell after 36 months in the US you will be liable for capital gains tax on the sale, payable to Uncle Sam. Unless you envisage, and are pretty certain that you will want to return to that house, you should seriously consider selling, if not now, then certainly well before the third anniversary of you moving out of your home in UK.

daveyboy1984

Oh, I didn't know that. Do you know what percentage the Capital Gains is? Thanks.

Pulaski

20% of the gain on the house from the date of purchase even though you weren't liable for US taxes at that time. (The rule that you have $250,000/$500,000, depending on whether you file taxes single or married-jointly, of CGT allowance for any home that you have lived in "for two of the past five years".) You can deduct capital improvements, but I don't think the US makes any adjustments for inflation.

AND there is the odd concept of there being a taxable gain on the premature payoff of the mortgage because it takes fewer dollars to pay off the mortage than you received when you took out the loan. This happens when the value of sterling has fallen since you took out your mortgage. E.g. you borrowed £200,000 when the exchange rate was $1.60:£1, so the loan was valued at $320,000. Ten years later you have paid off £50,000, but the exchange rate is now $1.25:£1 so it wiĺl only take $187,500 to pay off the balance of £150,000. If the exchange rate was still $1.60:£1 it would have taken $240,000 to pay off $150,000, so there is a taxable gain on the loan of $52,500! Again, it makes no difference that this chain of events started before you were liable for US taxes, or had even considered the possibility of moving to the US.

daveyboy1984

Thanks, this is really good to know!

Pulaski

You're welcome.

warwick3

Does anyone know, if you refinance a UK mortgage (ie change the deal you are on rather than actually sell the house), while a US tax payer, if this is liable for the foreign loan tax too? Just thinking it could be seen as paying the mortgage off and borrowing the money again but on different terms?

Cook_County

Yes - it is all in IR Code Section 988.

warwick3

Thanks