Tax on UK rental income
#1
Just Joined
Thread Starter
Joined: Jun 2012
Posts: 3
Tax on UK rental income
Hi all....this site/forum looks tremendously helpful. My wife and I are relocating to US from UK for work (we are British citizens).
I'm working my way through the US tax maze and had a question. We have a property we are letting out in UK; will we have to disclose this to US IRS in a tax returns and will we be taxed on on UK rental income (even though we will be taxed on it in the UK)? The rental income in UK over 12 months could be ~£90k. Appreciate your help!
I'm working my way through the US tax maze and had a question. We have a property we are letting out in UK; will we have to disclose this to US IRS in a tax returns and will we be taxed on on UK rental income (even though we will be taxed on it in the UK)? The rental income in UK over 12 months could be ~£90k. Appreciate your help!
#2
Back home at last!
Joined: Mar 2012
Location: UK to AUS to USA, now home in UK
Posts: 259
Re: Tax on UK rental income
We rent out our UK property and declare all rental income in the US on our annual tax returns. The US requires all worldwide income to be delared. As for the UK, we declared the rental income for the first few years but then were notified that unless our UK derived income changed dramatically we did not need to file any more UK tax returns. By the time we took off all our allowed deductions, our UK income was below the pesonal allowance threshold. It looks as if yours will be considerably highter so you will probably need to declare it and pay tax in the UK, but with the dual taxation agreements I don't think you will be taxed again in the US although you must declare it. I'm sure someone more knowledgeable than me will be along to clarify that.
Good luck with your move.
Good luck with your move.
#3
Re: Tax on UK rental income
Yes, you will be taxed on it in the US. You will be able to offset foreign tax paid. If I were you, I'd spend a little of that 90k on a decent tax guy to make sure you're properly looked after.
#4
Re: Tax on UK rental income
You can also claim depreciation in the US on your UK rental which can help alot. I would also recommend getting a tax guy to do this for you.
#5
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Joined: Jun 2012
Posts: 3
Re: Tax on UK rental income
Thanks this is very helpful. To be clear, it is 2 apartment I would be letting out; total rental income of £90k, against which there is £40k of interest payments, £10k of service charges, a bit of maintenance (depreciation) I can charge.
#6
Re: Tax on UK rental income
I wouldn't know as I don't have mortgages on any of my UK stuff, but seem to remember someone reading a post from someone saying that they were having problems claiming interest on multiple overseas units....
#7
Re: Tax on UK rental income
#8
BE Enthusiast
Joined: Nov 2007
Location: Carson City, NV
Posts: 789
Re: Tax on UK rental income
Maintenance and depreciation are not the same. The IRS assumes that a building has a finite lifespan and you write it down over the assumed lifetime. This can make a whole lot of a difference.
I would also consult with a UK tax professional to see if you actually have to pay taxes on the UK property if you are not a resident. Admittedly I'm not making any money on my UK house so I don't have to pay taxes anyway, but I have to fill in a tax return in the UK and in the US. You can probably apply any taxes paid in the UK as a foreign tax credit here in the US, but there is a cap on that IIRC.
I'd agree with all of the other posters, you need a competent CPA here in the US who is familiar with the US foreign tax credits etc.
#9
Re: Tax on UK rental income
I completed form NRL1 - "Non-resident landlord scheme – Application to receive
UK rental income without deduction of UK tax". This allows my agent to pay the whole of the rent to me (minus his fees) without deducting the UK tax.
I was told by my tax advisor that this would make my tax returns easier. I've not been here for a full tax year yet, so can't comment on whether this is true or not. What I have been doing though is setting aside some of the rent money in anticipation of a bill from the IRS (and/or HMRC) after the next round of tax returns....
UK rental income without deduction of UK tax". This allows my agent to pay the whole of the rent to me (minus his fees) without deducting the UK tax.
I was told by my tax advisor that this would make my tax returns easier. I've not been here for a full tax year yet, so can't comment on whether this is true or not. What I have been doing though is setting aside some of the rent money in anticipation of a bill from the IRS (and/or HMRC) after the next round of tax returns....
#10
BE Enthusiast
Joined: Nov 2007
Location: Carson City, NV
Posts: 789
Re: Tax on UK rental income
Are you sure that you can't deduct the interest? I know I can, but I've only got a house that used to be my primary residence.
#11
Re: Tax on UK rental income
Interest expense. You can deduct mortgage interest you pay on your rental property. When you refinance a rental property for more than the previous outstanding balance, the portion of the interest allocable to loan proceeds not related to rental use generally cannot be deducted as a rental expense. Chapter 4 of Publication 535 explains mortgage interest in detail.
#12
Re: Tax on UK rental income
Yes you can. From the IRS publication
Interest expense. You can deduct mortgage interest you pay on your rental property. When you refinance a rental property for more than the previous outstanding balance, the portion of the interest allocable to loan proceeds not related to rental use generally cannot be deducted as a rental expense. Chapter 4 of Publication 535 explains mortgage interest in detail.
Interest expense. You can deduct mortgage interest you pay on your rental property. When you refinance a rental property for more than the previous outstanding balance, the portion of the interest allocable to loan proceeds not related to rental use generally cannot be deducted as a rental expense. Chapter 4 of Publication 535 explains mortgage interest in detail.
Mortgage interest on a rental property is an expense that can be deducted from your taxable income. You can also depreciate the value of the property, but not the land. if you sell you will have to pay capital gains on the entire amount of any gain.
#13
Re: Tax on UK rental income
My husband has a house in the UK. We declare the rental income but deduct the mortgage interest and depreciation. We deduct repairs and any maintenance work as well. He also completed the NRL1 as well as complete UK tax returns the first two years he moved here.
Pete Newton is our accountant who is a
www.britishexpatstax.com
Pete Newton is our accountant who is a
www.britishexpatstax.com
Last edited by penguinbar; Jun 7th 2012 at 3:37 am. Reason: meant to say Pete is an expat as well!
#14
Re: Tax on UK rental income
Hi all....this site/forum looks tremendously helpful. My wife and I are relocating to US from UK for work (we are British citizens).
I'm working my way through the US tax maze and had a question. We have a property we are letting out in UK; will we have to disclose this to US IRS in a tax returns and will we be taxed on on UK rental income (even though we will be taxed on it in the UK)? The rental income in UK over 12 months could be ~£90k. Appreciate your help!
I'm working my way through the US tax maze and had a question. We have a property we are letting out in UK; will we have to disclose this to US IRS in a tax returns and will we be taxed on on UK rental income (even though we will be taxed on it in the UK)? The rental income in UK over 12 months could be ~£90k. Appreciate your help!
As an overseas landlord, you will need to complete for NRL1 - this does NOT give you any tax-free status, it just permits the rent to be paid to you in a normal fashion as if you were a UK landlord - otherwise the tenant or the letting agent has to deduct 20% tax at source and pass direct to HMRC. (you also need to complete a P85 - that is not letting-specific, everyone leaving does)
US tax - a different tax year (calendar as opposed to April/April which is a bit of a pain). You basically go through the same calculation, except you can depreciate the property in the US (and you need to think about the value of the property to declare as the base for depreciation) and you deduct any tax already paid in the UK. You then (effectively) pay US tax on your lettings profit at your US marginal income tax rate.
If I were you I would do the UK self-assessment myself (includes any bank interest, dividends and all that) and I would get someone else to do my US return. Don't forget you effectively have to calculate your UK tax twice - once for the UK on an April 5th - April 4th year and then for the US on a Jan 1st to Dec 31st year.
#15
Just Joined
Joined: Oct 2012
Posts: 19
Re: Tax on UK rental income
Hi All,
I have a related question to this.
My wife and I are moving to the US in the next 3 months. We have a UK rental property that is solely on my wife's name. It has no mortgage on it. rental income is 16,000 GBP.
From reading some of the previous posts, it seems like we may only be able to claim one set of taxable allowances of 8k is that correct? and then we may have to pay a fair bit of tax in the US as we have no interest expense to offset the income.
Would it be better to a) have a small mortgage on this property? and b) have both myself and my wife on the title deeds?
Many thanks,
Doug
I have a related question to this.
My wife and I are moving to the US in the next 3 months. We have a UK rental property that is solely on my wife's name. It has no mortgage on it. rental income is 16,000 GBP.
From reading some of the previous posts, it seems like we may only be able to claim one set of taxable allowances of 8k is that correct? and then we may have to pay a fair bit of tax in the US as we have no interest expense to offset the income.
Would it be better to a) have a small mortgage on this property? and b) have both myself and my wife on the title deeds?
Many thanks,
Doug