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Rental income

Rental income

Old Apr 5th 2009, 4:35 pm
  #1  
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Default Rental income

Hi experts!

I will shortly be moving to the states, on an L1 visa.

I intend on renting out my property in the UK whilst living in America. Would someone be able to advise me if I require to pay tax on the income I earn (over the tax free amount) from the rental during my stay?

Thanks
Dave
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Old Apr 6th 2009, 8:51 am
  #2  
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Default Re: Rental income

OK this is from an Australian perspective. I have rental income from Australia. For the last three years, my accountant has stated that my income from an Australian Federal pension and my rental income were exempt from reporting in the US based on his reading of the tax treaty between Australia and the US.

This year (2008 tax filing just completed) he decided that he needed to report the net income from the rentals and determine the tax I paid in Australia on that net income.

He then worked out what additional tax I would have paid on that income in the US, deducted the tax I already paid in Australia and then I had to pay the balance to the IRS.

In my opinion this is a little greedy of the US government - but thats life.

Next year I will not have any rental income from Australia.

I guess the tax treaty between the UK/US is similar - but do not quote me on that.

Vince
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Old Apr 6th 2009, 5:24 pm
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Default Re: Rental income

Originally Posted by daveh85 View Post
Hi experts!

I will shortly be moving to the states, on an L1 visa.

I intend on renting out my property in the UK whilst living in America. Would someone be able to advise me if I require to pay tax on the income I earn (over the tax free amount) from the rental during my stay?

Thanks
Dave
My experience (probably correct but take your own view)

(1). P85 before you leave

(2). NRL1 before you leave

(3). You will pay UK tax on the profit, after taking into account your tax free allowance

(4). You will pay tax in the US on the profit, you will have no US tax-free amount left (assuming your salary takes you over the US tax-free) so you will pay it on 100% of the profit, but you can deduct any UK taxes already paid. This has the net effect of the profit being fully-taxed at your US marginal rate. Note that the US does have better deductions and that there is a depreciation charge you can put against the property (based on acquisition value), which helps reduce the taxable amount.

Roughly, assume A 30% tax on the profit with no tax-free amount and you should be OK (depends upon your US salary, State etc). Obviously make sure you include all costs taken in letting the property to reduce your profit - perhaps you have to call/email the agents/tenants regularly so some of your US phone/web bill could be apportioned, or you may have to fly back and check the place so you can charge your flights, car hire etc to running costs, and so on.
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Old Apr 7th 2009, 7:24 pm
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Default Re: Rental income

Don't forget that as you are moving part way through the tax year you will have overpaid UK taxes, so you will have a refund to apply the profit to.

Remember you can also reduce the profit by applying your mortgage interest, agency fees, gas certificate, repairs...
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Old Apr 7th 2009, 7:53 pm
  #5  
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Default Re: Rental income

Thanks everyone!

I've started going through the fun task of filling in the HMRC documents.
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