Tax implications for emmigrating but renting out house

meljfin

Hi
Our house is on the market as we are emmigrating to Canada next year but it is not selling so it looks like we will be renting it out. I am really confused as I have been told lots of different info and could do with some help please!!

Our mortage is interest only at the moment and is £730 per month and we have been told we could get £750 - £800 per month rental income. By the time we have paid the agency their 10% management fee, the insurance etc..we will have to top the mortgage up ourselves. However i have now been told that as we won't be living in the UK we also have to pay 20% tax - how is this so when we won't be making any profit? I thought that you only paid tax on profit? Is is different as we won;t be living here? If this is the case we are going to be atleast £200 per month down.

I thought about remortgaging but don't think we have enough equity for a buy to let and also don't have money for fees etc.

Thank you
Melanie

phead

meljfin wrote: »

Hi
Our house is on the market as we are emmigrating to Canada next year but it is not selling so it looks like we will be renting it out. I am really confused as I have been told lots of different info and could do with some help please!!

You need a canadian tax forum

Your income tax will be payable there, so you need to find out if you can offset the (now) overseas mortgage(or other expenses) against tax, or if there are any other tax offsets for rental income in canada.

PayDay

I'm not sure if you have thought about these other things to do with being a LL.

• You need to have permission from your mortgage lender to let the property.
• You need landlords insurance.
• You need a gas safety certificate (from a corgi registered engineer)
• You are responsible for the safety of the electrics in your property

You also need to allow for repairs and any voids you might have.

tbs624

meljfin wrote: »

Hi
Our house is on the market as we are emmigrating to Canada next year but it is not selling ....

Drop the price until it does. If you are emigrating, you don't need the hassle factor,particularly if you have no contingency funds.

Even if you have a Letting Agent you would still be ultimately responsible as a LL, and anyone can currently set up in business as a LA.As with everything there are good and bad but do check out some of the comments from LLs on this board about their personal experiences of LAs, read about how some LAs offend tenants by not doing the job they are paid to do and cause rental voids when those tenants choose to go elsewhere, and also see here: http://www.allagents.co.uk/

zappahey

We rented out our house while we were in Canada and, from my experience, I would say don't do it. It's a hassle you could do without.

You will be depending upon the agency to look after you and you will feel utterly hopeless from so far away. Every repair will need a tradesman at tradesman's rates and, perhaps unlike an owner-occupier, your tenants won't be happy to put up with stuff while you find a better price.

You also need to tally up how much you are losing during the rental (including voids, repairs, insurance etc) and see how that compares to the price reduction you need to make to sell. Of course, I'm assuming that the lower selling price would actually cover your mortgage.

Does your lender know that you're emigrating? They might be less keen to agree to your plans if they know you'll be in another country.

Anyway, you only pay tax on the "profit", so you should be safe there as your chances of seeing a profit are slim.

Good luck with whatever route you choose.

iolanthe07

I rented out my UK house when I went to work in the US for five years. I don't know whether it's the same in Canada, but I paid tax at US rates on the rental income. In the event I didn't actually have to pay any tax, because as soon as I left the UK the tenants stopped paying rent. It was a nightmare trying to evict them and sell the house from 5000 miles away. I did it in the end, but lost a fair bit of money. Good luck if you go for this, but ask a Canadian accountant about the tax implications, and get a damned good agent to act for you over here.

clutton_2

you need to contact the tax office and explain your circumstances and ask their advice. there are occasions where the tenant has to deduct tax from the rent for an overseas LL - and i doubt VERY much if that tax then gets sent to HMRC !!!

Captain_Mainwaring_2

clutton wrote: »

you need to contact the tax office and explain your circumstances and ask their advice. there are occasions where the tenant has to deduct tax from the rent for an overseas LL - and i doubt VERY much if that tax then gets sent to HMRC !!!

Oh God.

The tenant/agent in all occasion has to deduct tax and account for it until a dispensation is received from HMRC, do you honestly think that the tenant will just be allowed to go down the pub with the money?

I am in a situation where my tenant is not required to deduct tax and I am not required to submit a UK tax return because I don't have any UK income.

Actually it can be quite a bit of work for the tenant, particularly if they would not normally have income outside of PAYE.

All UK income (rental profit) is subject to UK tax in the first place, please do not assume that you can just pay the tax in the country of residence until you are sure about double taxation agreements. Your domicile and residence are extremely important, talk to a good accountant experienced in overseas residence. Also remember that to some extents losses can be carried forward.

I'd strongly advise you NOT to talk to the tax office until you talk to an account. You can have late submission penalties set aside in some cases where you are making a loss.

GDB2222

I had the utmost difficulty letting out a flat in North Norfolk, whilst I live in London. (Simple things like finding a local tradesman, you really need a local paper.) I couldn't imagine doing it from Canada. It's the stuff of nightmares.

Notlob

The 20% tax, as Captain Mainwaring states, must be retained until they (agent or tnt) receive a certificate from the inland revenue. See agents guide http://www.hmrc.gov.uk/cnr/nrl200.pdf.

Although you say there will be no tax due, the agent can only take into account their known expenses and not any mortgage interest.

All you have to do is apply for an exemption certificate and the agent/tnt will not need to retain any tax

Notlob

bubblesmoney

do a bit of reading on hmrc website about double taxation agreements, look into the agreements regarding canada, then see what the reference number is for that agreement and look up the same agreement number on the opsi website for full details of double taxation agreementbetween uk and canada, that might give u a bit more insight. be aware of any subsequent amendments to the agreements. also best bet and safest would be to take the advice of an accountant who is well versed in double taxation agreements

Captain_Mainwaring wrote:

I am in a situation where my tenant is not required to deduct tax and I am not required to submit a UK tax return because I don't have any UK income.

isnt the uk rent considered as uk income for tax purposes? or do u not have to pay tax because the income is below taxation limits? i was under the assumption one didnt get any allowance allowed free from income tax if u were not resident in a country. atleast thats the way tax allowances work in some countries. also if one is a USA citizen i heard one has to submit tax returns for world income even if they are not resident in usa !!! (my info may be wrong on this). is there any similar rule for uk citizens even if they dont have any uk income and do they have to file income tax returns in uk even in that situation regarding their world income?

also what happens regarding capital gains if uk property sold when domiciled abroad with & also without uk citizenship scenarios.

also can u give some links for accountants well versed in double taxation agreements etc. would be interested in knowing about such firms especially if they take clients outside the cities they work in, but would prefer such firms with branches in many big cities in uk. any pointers in this regard is much appreciated.