USA tax on UK rental income
I submitted my UK tax return for rental income on my UK house. This came within the tax allowance, so I actually had no tax to pay. Will the USA IRS see this as taxed in UK and double tax treaty applies, or see no payment and therefore 100% subject to USA tax?
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Re: USA tax on UK rental income
Double taxation generally works on giving you a credit for tax paid where the income is generated, so if the local rate where you live is lower you pay nothing, but if the local rate is higher you pay the difference. You cannot say "I paid 1% over there, so it's already taxed and I'm not paying you any more."
The reality is that you will likely pay very little tax on income from a rental in the UK assuming that you have a mortgage and bought it within the past 20 years. The reason is the laundry list of deductions you make on rental property to reach net taxable income: mortgage interest, depreciation (1/40th the value of the structure, but not the land - rule of thumb is 80% of the purchase price, unless you own a flat where the proportion of the building might be more, or land with development potential in which the building would be a lower percentage), insurance, management fees, marketing costs, depreciation on appliances (generally 20%, but currently 100% in year 1), repairs and maintenance, and pretty much anything else you spend as a result of owning the property. And the result of the mortgage interest and depreciation (which is mandatory) alone is that most of your gross income is wiped out. :) In fact making a taxable loss is a real possibility, and depending on your income you may even be able to deduct part of the loss from your earned income for tax purposes. :thumbsup: |
Re: USA tax on UK rental income
Originally Posted by Pulaski
(Post 12637986)
Double taxation generally works on giving you a credit for tax paid where the income is generated, so if the local rate where you live is lower you pay nothing, but if the local rate is higher you pay the difference. You cannot say "I paid 1% over there, so it's already taxed and I'm not paying you any more.
The reality is that you will likely pay very little tax on income from a rental in the UK assuming that you have a mortgage and bought it within the past 20 years. The reason is the laundry list of deductions you make on rental property to reach net taxable income: mortgage interest, depreciation (1/40th the value of the structure, but not the land - rule of thumb is 80% of the purchase price, unless you own a flat where the proportion of the building might be more, or land with development potential in which the building would be a lower percentage), insurance management fees, marketing costs, depreciation on appliances (generally 20%, but currently 100% in year 1), repairs and maintenance, and pretty much anything else you spend as a result of owning the property. And the result of the mortgage interest and depreciation (which is mandatory) alone is that most of your gross income is wiped out. :) |
Re: USA tax on UK rental income
Originally Posted by suewarm
(Post 12637991)
thank you for taking time out to give a very detailed answer, however, my question is in how the USA view the rental income, where my tax to pay in the UK was nil due to tax allowance. Will the US consider it to be 100% taxable to them as there is no payment to UK?
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Re: USA tax on UK rental income
I agree with what Pulaski said. We had a UK rental house for 6 years while living in the USA and during that time my company’s accountants did our tax returns. I had to produce a profit and loss statement along the lines Pulaski detailed for inclusion in our US tax return. We never owed any US tax as it was always a loss. And we never owed any UK tax either. |
Re: USA tax on UK rental income
Ok thanks. We do make a profit but not enough to go over the uk tax allowance threshold.
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Re: USA tax on UK rental income
Originally Posted by suewarm
(Post 12638060)
Ok thanks. We do make a profit but not enough to go over the uk tax allowance threshold.
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Re: USA tax on UK rental income
Originally Posted by suewarm
(Post 12638060)
Ok thanks. We do make a profit but not enough to go over the uk tax allowance threshold.
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Re: USA tax on UK rental income
Thanks no mortgage to offset
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Re: USA tax on UK rental income
Originally Posted by suewarm
(Post 12638083)
Thanks no mortgage to offset
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Re: USA tax on UK rental income
Originally Posted by Pulaski
(Post 12638080)
But you don't deduct depreciation in the UK, and didn't HMRC also restrict, or eliminate, deduction of mortgage interest?
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Re: USA tax on UK rental income
Originally Posted by Mercury39
(Post 12638156)
They did, it was 100% deductable in the UK until 2016/17 it is now phasing out. from 2017-2018, this relief is being scaled down so that landlords can only deduct 75% of their mortgage interest. This will drop to 50% in 2018-2019 and 25% in 2019-2020. From the 2020-2021 tax year, you won’t be able to deduct mortgage interest at all.
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Re: USA tax on UK rental income
Originally Posted by spouse of scouse
(Post 12638161)
Yes, it's quite a significant change especially for those in higher tax brackets. The new system still allows tax relief in the form of a 20% tax credit on mortgage interest, the table in this article explains the phasing in https://www.which.co.uk/money/tax/in...d-atnsv0j6j782
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Re: USA tax on UK rental income
Originally Posted by mrken30
(Post 12640288)
It will be interesting to see if rents start to rise to mitigate this effect. Hopefully it will make house prices come down a bit. However there a fair number of people leaving the UK since Brexit. There are a few empty rental houses from what I hear.
https://www.theguardian.com/uk-news/...most-six-years https://www.independent.co.uk/news/u...-a8356646.html https://www.bbc.co.uk/news/business-45113867 |
Re: USA tax on UK rental income
Originally Posted by durham_lad
(Post 12640298)
Any data to backup what you hear? Just this week the latest figures show net migration in 2018 at over 300k. Falling migration for sure but still positive. Non-EU migrants in 2018 outnumbered EU migrants by 3 to 1, and there is still a severe housing shortage including rentals. https://www.theguardian.com/uk-news/...most-six-years https://www.independent.co.uk/news/u...-a8356646.html https://www.bbc.co.uk/news/business-45113867 It looks like there may be a glut of empty rental homes, this may explain the decline in rents. Maybe it's just a coincidence. https://www.theguardian.com/money/20...me-in-a-decade |
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