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UK rental income. Is it taxed?

UK rental income. Is it taxed?

Old Dec 28th 2016, 9:04 am
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Default UK rental income. Is it taxed?

All,
I will be renting my UK property soon and working in USA. Will this income be taxed? It is still under 11K personal allowance in UK so I assume I don't need to declare or pay tax on this in USA?
Correct?
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Old Dec 28th 2016, 10:33 am
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Default Re: UK rental income. Is it taxed?

You assume incorrectly, but you are partially correct. You must report your rental income on your US tax return, but you can deduct any expenses you incur, including mortgage interest, insurance, repairs and maintenance, management fees, advertizing/marketing, property taxes (if any), and depreciation - which is mandatory.

Depreciation is calculated as 1/40 of the value of the building each year. If you don't know the value of the building as distinct from the value of the land, 80% of the purchase price of building+land is a good place to start. Depreciation is also deducted for appliances at 20%/yr.

By the time you have deducted mortgage interest, depreciation, management fees, repairs and maintenance, etc. I doubt you will have any profit left to tax!

Last edited by Pulaski; Dec 28th 2016 at 10:39 am.
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Old Dec 28th 2016, 11:41 am
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Default Re: UK rental income. Is it taxed?

Thanks Pulaski.
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Old Dec 28th 2016, 5:20 pm
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Default Re: UK rental income. Is it taxed?

Originally Posted by Pulaski

Depreciation is calculated as 1/40 of the value of the building each year. If you don't know the value of the building as distinct from the value of the land, 80% of the purchase price of building+land is a good place to start. Depreciation is also deducted for appliances at 20%/yr.
Very much depends on the area, in central London the land value is probably a higher percentage of the property cost, whereas in the NE and Wales the building is probably a higher percentage of the property purchase cost, same with flats possibly. You should have a rebuild value on you insurance which should give you a good idea. This is generally higher than the real building cost.

Also you will still need to submit your UK tax return to HMRC and register as a non resident landlord. You should get away with just filing annual returns and not having tax with held by the tenant/letting agent.

https://www.gov.uk/tax-uk-income-live-abroad/rent

One other thing, I have found Turbotax better at dealing with overseas rentals than H&R block. The other software out there, don't even bother with, or use a CPA. Ask if they know how to depreciate overseas property, if they say you just depreciate it over 27 1/2 years, find another CPA.

Last edited by mrken30; Dec 28th 2016 at 5:26 pm.
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Old Dec 30th 2016, 8:59 am
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Default Re: UK rental income. Is it taxed?

Hi - I just registered here on the site after a two and half year process to get case status approved to then obtain a green card. I can see us fixing our affairs and coming Winter 2017. This move has effectively taken me 35 years or wanting to do this! But this is a tax question and I can see how if you don't plan correctly you'll come a cropper with capital gains and all of that stuff. Bottom line is after a freelance life I've bought property to let (and will rent my main home) and now have a portfolio that effectively gives a reasonable pension for two. We can afford a small home in LA (18 months ago it would have been a big home!). My plan was to hold the UK property, get taxed in the US and have nothing deducted in the UK using the Double taxation agreement. In the UK our tax is zero because of the costs of being a landlord (and mortgage relief will be phased out in the next couple of years). I went on a tax calculator and it comes up with tax to pay both federal and state. Also some sites warn against capital gains if you sell whilst in the US - which is inevitable if you are renting property -

So my question is this:

Has anyone any tips or salutary tales that can guide us in the remaining months we have left to plan our finances? (I'm open to radical solutions: Sell everything and buy in the states ahead of the move). Should we talk to tax advisers beforehand? (I tend to stay away from professional advice as I find it over-rated in that there are a few tips and you then get hammered). What about timing? And ahead of any answers thanks for those and also thanks to whoever set this site up! Should this be in another forum?
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Old Dec 30th 2016, 6:46 pm
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Default Re: UK rental income. Is it taxed?

Rental income is excluded from the double taxation treaty.

Are you already resident in the US? If so, you are already committed.

Capital gains is calculated from the purchase date, it is also assumed that you have been depreciating the property by 1/40th every year on the building value at the time of purchase. Adjustments are made if it was your primary residence. CGT is reset on death. There are other complications with mortgages and exchange rates, which I am not familiar with.
It is possible to exchange the property for different "like" property using a 1031 exchange. That's a whole other game.
There was talk to getting rid of the personal allowance for expats.
CGT and the mortgage/exchange rate issues might be the biggies, depending on how long you have had the properties.
On going tax filing is doable , the UK tax software is more expensive than the US software, around £99 ish. They don't allow non resident to file using HMRC website

Last edited by mrken30; Dec 30th 2016 at 6:54 pm.
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Old Jan 3rd 2017, 7:48 pm
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Default Re: UK rental income. Is it taxed?

Being a Non Resident Landlord requires approval from the HMRC so I had assumed you would need to declare this rental income in the UK through a self assessment tax return and not declare it in the US?

This is the link I follow and have been doing this since being in the US.
https://www.gov.uk/tax-uk-income-live-abroad/rent
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Old Jan 3rd 2017, 8:01 pm
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Default Re: UK rental income. Is it taxed?

Originally Posted by Andrew_365
Being a Non Resident Landlord requires approval from the HMRC so I had assumed you would need to declare this rental income in the UK through a self assessment tax return and not declare it in the US? .....
If you are tax-resident in the US you must declare your global income on your US tax return. There are various credits and concessions to ensure that income is only taxed once depending on how exactly the income arose.
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Old Jan 3rd 2017, 8:47 pm
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Default Re: UK rental income. Is it taxed?

Originally Posted by Andrew_365
Being a Non Resident Landlord requires approval from the HMRC so I had assumed you would need to declare this rental income in the UK through a self assessment tax return and not declare it in the US?

This is the link I follow and have been doing this since being in the US.
https://www.gov.uk/tax-uk-income-live-abroad/rent
This site gives a good overview of what you need to do. Foreign Real Estate U.S. IRS Tax Rules You Must Follow

It sounds like you may benefit from seeking advice from a CPA that handles overseas rental income.
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Old Jan 4th 2017, 3:07 am
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Default Re: UK rental income. Is it taxed?

we rented a british property out. the 'profit' was less than the UK personal tax allowance each year (owned jointly so that made it really easy as could use two tax allowances if really needed). DID have to declare on a uk tax form every year though so long as there is 'any' income - even if no tax due.. we never paid uk tax on ours. when we sold we paid the capital gains in the us (required because of poor planning on our part and not understanding the US rules at the time so incurred a large bill because of the nasty exchange rates we were up against).
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Old Jan 4th 2017, 1:01 pm
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Default Re: UK rental income. Is it taxed?

If you live in the US and rent out property in the UK you will have to deal with tax in both countries. For the UK you'll have to comply with the "non-resident landlord" rules and file a self-assessment. Expenses and your personal allowance (make sure you look at form R43) will reduce your tax bill. You will also have to work out the net income on your US taxes and apply any foreign tax credits you have from tax paid in the UK......read the tax treaty to understand who has primary taxation authority.
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Old Jan 4th 2017, 3:57 pm
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Default Re: UK rental income. Is it taxed?

Originally Posted by Pulaski
If you are tax-resident in the US you must declare your global income on your US tax return. There are various credits and concessions to ensure that income is only taxed once depending on how exactly the income arose.
I should clarify that I am a non permanent resident which I believe changes this.
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Old Jan 4th 2017, 4:00 pm
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Default Re: UK rental income. Is it taxed?

Originally Posted by Andrew_365
I should clarify that I am a non permanent resident which I believe changes this.
The state department rules for "permanent residence" are different from the IRS rules for "tax residence", so just because you aren't a permanent resident doesn't mean you aren't a tax resident.

Last edited by Pulaski; Jan 4th 2017 at 4:46 pm.
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Old Jan 4th 2017, 4:19 pm
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Default Re: UK rental income. Is it taxed?

Originally Posted by Andrew_365
I should clarify that I am a non permanent resident which I believe changes this.
I too am (currently) a non=permanent resident and I must declare my worldwide income on my 2016 return as I will be electing to be treated as a full year resident for tax purposes so I can use the Married Filing Jointly style of filing.

Even under a dual status alien classification, you are only not required to declare your income from outside of the US from any portion of the year that you were classified as non-resident for tax purposes. But any income received from US sources is taxable whether you are resident or not.

The IRS website has good articles on this.
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Old Jan 4th 2017, 4:35 pm
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Default Re: UK rental income. Is it taxed?

Originally Posted by Andrew_365
I should clarify that I am a non permanent resident which I believe changes this.
You can be a US tax resident without being a US permanent resident. What visa do you have?
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