House in UK-Keep or Sell
If you are emigrating, should you keep or sell your house in the UK?
- The main advantage is that if you have to return to the UK, you have either a home to return to or at least, an asset that has kept up with the UK housing market.
- It's a good "insurance policy" against an emigration going wrong. (but see below ... )
- This is particularly important if you are not immediately going to get permanent resident status in another country (it is often problematic to buy property in a country if you are not a permanent resident).
- If you think the UK is a good long term investment, your house should be a good investment for the longer term.
- If you are moving to a country with strict inheritance laws, a UK-based property might not be subject to these.
Quite a lot of disadvantages, however:
- Mortgage. If you have a mortgage on your UK property, your lender will probably surcharge your mortgage interest rate and/or charge you for "consent" to let the property. If you can pay off the mortgage, this avoids the problem but then you will probably have a higher mortgage in Australia (or whatever other country you move to). Also, having a paid off house rented out and living in a house with a mortgage is tax-inefficient compared to having a mortgage on a rental house and living in a house with a low mortgage. Unless you move to one of the few countries that allows a home mortgage interest tax deduction, such as the USA.
- Income and capital gains tax. In principle, you should not be taxed twice but you will have the hassle of dealing with two sets of tax returns (UK and the country in which you move to). Most of the time, if you migrate to another country on a permanent basis, you will be taxed on income whether you bring that income into the country or not.
- In some countries, eg USA, you will have to pay capital gains on the entire capital gain over your period of ownership if you sell later on, while resident in that country.
- Inheritance tax. If you leave a house in the UK, at the very least, that asset may be subject to Inheritance Tax if it is worth more than the nil-rate band. Leaving a house in the UK may also indicate that you have not lost your UK domicile for inheritance tax purposes.
- Probate. Your will will require probate in the U.K. as well as in your home country, or you may need two wills (which is a problem to co-ordinate).
- Emotion. Do you want tenants living in your "home" especially if you envisage living there in future?
- Management of the property. Even if you pay an agent, it's hard to manage a property from overseas. Unless you are in a situation where you can visit the UK regularly or you have a trusted friend/relative to oversee the property.
- Insurance. You must tell your insurer that the property is being rented out and get a confirmation in writing. It will affect your insurance cost. If the property is empty, you must also tell the insurer. You will have limited insurance cover once property is empty for a period of time (30/60/90 days).
- Cashflow. Will the rental income cover your costs? Allow for agent fees, repairs and maintenance, mortgage interest, insurance, improvements necessary to maintain the property (especially in an older property, new kitchen, roof, etc). Also factor in vacant periods.
- You are more likely to need a mortgage to buy your home in a new country (which may or may not be important).
- Commitment to your new home. If you are emigrating to a new country, keeping a house in the UK can leave you feeling less committed to your new country because you still have a "safety net" to return home to. Migration, like marriage, needs commitment in order to work properly, in the majority of cases.
- Valuation. Australia assumes that when you became tax resident, you sold and re-acquired the house at its fair market value. You should obtain an independent valuation of the house at the time you become tax resident and keep it in a safe place. It will be proof of the cost basis for future capital gains tax in Australia.