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Tax on rental income in UK

Tax on rental income in UK

Old Dec 11th 2009, 4:56 pm
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Default Tax on rental income in UK

Hi.
My husband owns a house in the UK. He fiiled in the form at the beginning of the year from HM revenue and customs as a non resident landlord. He has his conditional greencard here.He came over on a K1 a year ago. His sent the info back to his dad who talked to his accountant about and and filled the rest out. we just got it back because he didn't put the tenants name on it. He doesn't really make a profit on the house. less than 10 quid a month and that would not even cover were and tear. There is a line asking how much rental income that he receives per year He put the total amount just over 5000 quid. My concern was that that is the amount of the mortgage per year not the amount of rental income that he receives. He and his dad think I'm wrong and that they put the mortgage amount down. I was on hold forever with the HM revenue trying to get an answer.

I know there is a UK/US tax treaty and I do not want to be liable on paying tax on 5000 quid when that is not the income he receives. Does anybody know what the right amount is to put down ? The mortgage money gets transferred from the tenants account to my husbands joint bank account that he has with his dads in the UK. I didn't realize that his dad put this amount on the form untill we just received it back. When we did our taxes last year my accountant said we didn't have to claim his house renatl since we weren't making a profit but from what he put on this form it looks like we are.I want to put in the correct amount before we send it back again. My usbnad and his gfather do not understand the US tax system .Has anyone else had this situation or knows if we leave the amount as is or just put the differnce( about 120 quid or less since it isn't really renatl income? Thanks
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Old Dec 11th 2009, 8:45 pm
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Default Re: Tax on rental income in UK

Originally Posted by penguinbar View Post
Hi.
My husband owns a house in the UK. He fiiled in the form at the beginning of the year from HM revenue and customs as a non resident landlord. He has his conditional greencard here.He came over on a K1 a year ago. His sent the info back to his dad who talked to his accountant about and and filled the rest out. we just got it back because he didn't put the tenants name on it. He doesn't really make a profit on the house. less than 10 quid a month and that would not even cover were and tear. There is a line asking how much rental income that he receives per year He put the total amount just over 5000 quid. My concern was that that is the amount of the mortgage per year not the amount of rental income that he receives. He and his dad think I'm wrong and that they put the mortgage amount down. I was on hold forever with the HM revenue trying to get an answer.

I know there is a UK/US tax treaty and I do not want to be liable on paying tax on 5000 quid when that is not the income he receives. Does anybody know what the right amount is to put down ? The mortgage money gets transferred from the tenants account to my husbands joint bank account that he has with his dads in the UK. I didn't realize that his dad put this amount on the form untill we just received it back. When we did our taxes last year my accountant said we didn't have to claim his house renatl since we weren't making a profit but from what he put on this form it looks like we are.I want to put in the correct amount before we send it back again. My usbnad and his gfather do not understand the US tax system .Has anyone else had this situation or knows if we leave the amount as is or just put the differnce( about 120 quid or less since it isn't really renatl income? Thanks
The form? Could this be the NRL1? If so it is purely to allow your husband to receive the rent gross (otherwise as a non-resident landlord the tenants or agent have to deduct tax) and does not have anything to do with the end of year tax that is actually payable.

You husband will need to complete a tax self-assessment each year, he will be able to deduct mortgage INTEREST (not the part that pays down the capital - it's the interest only he is allowed to claim), agents fees, insurance, CORGI, EPC and other costs, there is also a 10% wear and tear allowance. Look for the "UK Property" pages on the HM Revenue & Customs pages. After doing this calculation he will generate a "profit" (or loss) which, by the sounds of it, will be less than the UK personal allowance which is somewhere around 6,000 quid - so no tax to pay in the UK.

In the US however, he will also need to do the same calculation of "profit" (but note there is a nice depreciation allowance to add as well, which is not available in the UK) and any profit is (effectively) added to his income and taxed at his marginal US tax rate. The tax treaty between UK and US comes in if he did make a chunk of profit and pay some UK tax - this tax already paid can be deducted in the US when the US tax calculation is done.

As he doesn't appear to be making any profit (subject to the point about mortgage interest only and not the capital repayment bit) then it does not sound like you will be paying any US tax either, in fact the depreciation allowance might allow you to get a rebate (consider hard what value you put on the property for this depreciation allowance).
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Old Dec 12th 2009, 5:32 am
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Default Re: Tax on rental income in UK

Hi. It is the NRL1. We filled it out and mailed it back last February after we received it' Hcame here in Sept 2008. The letter on the form that we got was dated September 2009 and the problem now that I also see is it would have the infor for 2008 and not the 2009 info. It has his UK earnings for 2008 and they stamped the form as well Sept 2009.Basically they had it for 8 months before they even sent it back but I don't know how we prove this. Do they mail him a tax assesment form each year here in the states. Thanks again fopr your help. I am still a bit confused and worried that some info is nw out of date. Should we print out a new form anad attach the updated info?
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Old Dec 12th 2009, 5:36 am
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Default Re: Tax on rental income in UK

I also just realised that the letter that was sent back saying he applied for Uk rental income without the deduction of tax. What type of difference does this make in how we file our US tax returns? They basically sent it back and checked the box they need the UK letting agent(he didn't use one) /tenant name and address. I don't even know how long they take to approve that or not .
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Old Dec 12th 2009, 6:58 pm
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Default Re: Tax on rental income in UK

Originally Posted by penguinbar View Post
Hi. It is the NRL1. We filled it out and mailed it back last February after we received it' Hcame here in Sept 2008. The letter on the form that we got was dated September 2009 and the problem now that I also see is it would have the infor for 2008 and not the 2009 info. It has his UK earnings for 2008 and they stamped the form as well Sept 2009.Basically they had it for 8 months before they even sent it back but I don't know how we prove this. Do they mail him a tax assesment form each year here in the states. Thanks again fopr your help. I am still a bit confused and worried that some info is nw out of date. Should we print out a new form anad attach the updated info?
Originally Posted by penguinbar View Post
I also just realised that the letter that was sent back saying he applied for Uk rental income without the deduction of tax. What type of difference does this make in how we file our US tax returns? They basically sent it back and checked the box they need the UK letting agent(he didn't use one) /tenant name and address. I don't even know how long they take to approve that or not .
I wouldn't worry about the NRL1 & its dates that much to be honest. It has no effect on the total amount of tax you pay, only when you pay it - and it sounds like your tenants have been paying you 100% of the rent so the lack of one hasn't had an effect. Without it, the letting agents or tenants are required to retain 20% (ish) of the rent and pay it direct to the UK tax man, if you have tye NRL1 they don't need to do this. BUT in BOTH cases, he still need to file his UK tax return - if he came here in Sept 08 he should file a UK Self-Assessment tax return for the year to April 2009 (and then each subsequent year) www.hmrc.gov.uk/forms/sa105.pdf
www.hmrc.gov.uk/worksheets/sa105notes.pdf this is part of the form and its guidance but he would do better calling them and explaining his situation as he will need the "general" pages as well as the property ones.

It makes no difference in how you file your US tax returns - do not confuse the NRL1, all it does it allow you to have your rent without tax deducted at source, BUT you still have to pay the tax at the end of the year. The reason for the NRL1 is to catch overseas landlord who never pay their dues to the UK tax man, if they don't pay the NRL1 is rescinded and the agents/tenants have to withhold the tax.

You US returns should have the gross rent, minus mortgage interest, insurance, corgi, EPC and all the other costs. It should also have a depreciation charge based upon the value of the UK property.

I would look for a US tax person who has some experience of Brits or others from overseas - by the sounds of it you will get a rebate on your 2009 by using the zero profit and depreciation on the UK house. I would also look at filling your UK self assessment, otherwise they may cancel your NRL1 and the tax will be deducted at source with your having to file to get the overpaid tax back.
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Old Dec 13th 2009, 2:22 pm
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Default Re: Tax on rental income in UK

Thank you so much for your help! My accountant that I have used for several years is actually British but I have caught him making several mistakes in the last few years and I will no longer use him. I am trying to find an accountant in NYC that has experience in this matter.
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