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Tax on UK rental income

Tax on UK rental income

Old Mar 19th 2014, 12:38 am
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Default Tax on UK rental income

I will be moving to New York with work for a year (possibly longer) and am hoping to buy a UK flat shortly that I can rent out while I am away. While in NY, I will continue to be paid my UK salary on the UK payroll and presumably pay tax in the UK. I am a higher rate taxpayer (40%).

Is it the case that I would be better off not filing the form NRL1 and having a flat 20% being deducted from the gross rent at the management company level rather than filing the form NRL1 and presumably being taxed at the 40% rate?

I understand that the US taxes on worldwide income. Would I be able to avoid double taxation on my salary and rental income on account of the UK/US treaty?

Thanks in advance
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Old Mar 19th 2014, 12:48 am
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Default Re: Tax on UK rental income

If you're living in the US you'll almost certainly be liable for income and payroll taxes in the US if that is where you're living, notwithstanding you being paid in the UK. Your employer may have made alternative provision to pay the taxes in the US, so you can be paid through the UK payroll, but be very careful, because this could come back and bite you.
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Old Mar 19th 2014, 12:57 am
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Default Re: Tax on UK rental income

I thought that income from property rental (in the UK) was taxed as the same rate as income - so the OP would be paying 40% tax on the profit not 20%?
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Old Mar 19th 2014, 4:43 am
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Default Re: Tax on UK rental income

Originally Posted by HartleyHare View Post
I thought that income from property rental (in the UK) was taxed as the same rate as income - so the OP would be paying 40% tax on the profit not 20%?
A long time since I did this, but I thought the agents had to withhold the 20% on a monthly basis ( or whatever the payments were) but any increment that was due was sorted out at tax return time?
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Old Mar 19th 2014, 9:13 am
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Default Re: Tax on UK rental income

Thanks for your responses. As I understand, the letting agent deducts 20% before passing on the net rent to me unless I file a form NRL1 in which case nothing is deducted and I file a Tax Return and pay whatever tax is liable at the end of the year (which means it would be taxed at 40% I think as still being paid salary through the UK). I will be careful not to get stung by the US as suggested.
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Old Mar 19th 2014, 3:23 pm
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Default Re: Tax on UK rental income

when we came my husband was paid dollars in us but STILL paid national insurance in UK (sorted by employers) and NOT social security (until we converted to a local hire later on). Thus we paid income tax here and NOT in UK. we did still file a UK tax return and declared the income on renting out our home but the net profit was less than the personal allowance (as it was the only UK income we had) so we didn't owe ANY UK tax on it. we did file the form with the rental agency and nothing was withheld either.

bear in mind if you are paid in pounds you complicate a lot of things AND will bear the expense of sending over and converting to dollars (not to mention the delay) and the added complication of FBAR. id seriously look into getting paid in dollars.
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Old Mar 19th 2014, 4:07 pm
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Default Re: Tax on UK rental income

Originally Posted by alphaomega View Post
.... I will be careful not to get stung by the US as suggested.
You appear to have misunderstood. If you are not resident in the UK you are not liable for income tax in the UK. The "bit that you should be avoiding" is paying tax for which you are not liable i.e. the UK tax, and certainly NOT trying to evade the US income tax for which you are almost certainly liable, salary from US employment IN the US.
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Old Mar 19th 2014, 5:40 pm
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Default Re: Tax on UK rental income

Originally Posted by alphaomega View Post
Thanks for your responses. As I understand, the letting agent deducts 20% before passing on the net rent to me unless I file a form NRL1 in which case nothing is deducted and I file a Tax Return and pay whatever tax is liable at the end of the year (which means it would be taxed at 40% I think as still being paid salary through the UK). I will be careful not to get stung by the US as suggested.
Regardless of NRL1, the tax you owe the UK government will be at your marginal tax rate - 40% as you indicate (on the profit after agent costs, insurance, 10% wear & tear, mortgage interest).

All the NRL1 does is allow this 40% on the net profit to be paid at the end of the year, rather than 20% of the gross rent to be paid each quarter - which is then trued-up (at 40% net profit) at the end of year.

Either scenario (NRL1 or not) will require a UK tax return and will incur the same amount of tax overall.

You should go for the NRL1.
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Old Mar 20th 2014, 2:32 am
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Default Re: Tax on UK rental income

Originally Posted by Pulaski View Post
You appear to have misunderstood. If you are not resident in the UK you are not liable for income tax in the UK.
Except that non-residents are generally liable to income tax in the U.K. on most United Kingdom source income.

However British citizens (along with certain others) may claim the personal allowance even if non-resident, and this normally eliminates a U.K. tax liability in the vast majority of cases.
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Old Mar 20th 2014, 2:44 am
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Default Re: Tax on UK rental income

Originally Posted by JAJ View Post
Except that non-residents are generally liable to income tax in the U.K. on most United Kingdom source income.

However British citizens (along with certain others) may claim the personal allowance even if non-resident, and this normally eliminates a U.K. tax liability in the vast majority of cases.
Correct. I had sidetracked myself on the issue of income tax on salary.
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Old Mar 20th 2014, 3:59 am
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Default Re: Tax on UK rental income

If the OP becomes a US tax resident there will be US tax to pay on their worldwide income. That will include salary, rent, dividends etc. If the OP can establish UK non-residence status there will be no UK tax to pay on the UK rental income at least until 2015. The Treaty can be used to avoid double taxation and to determine the correct way to apply foreign tax credits.

The OP should be aware of the complications of owning certain UK investments and pensions when a US resident and also find out how payroll tax will be paid. Will their employer pay NI or FICA?
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