UK rental house whilst living in the USA

Scr00ge

I have quite an interesting tax situation on my rental house and would like some help:

I am currently living in the USA as an expat, and have rented my house in the UK. My house was purchased in my name, and I have paid off all the mortgage (except £1) so I don't have to own the deeds. The rental profit on the house is about £11,000 per year (as I have no mortgage interest). I have also filled in the Non-Resident Landlord form so that no tax is paid at source.

However, I can see from my last year's UK tax return, that my tax-free personal allowance is taken out of the rental profit, and then it is taxed in the usual way against me.

However, I am married, and want to try to use my wife's personal allowance against the rental profit to reduce our tax.

Can anyone give any help on how I should do this?

I've spoken to a few people who have told me that the tax man would not consider that my wife and I living in the house for the previous 10 years together would constitue joint ownership, and that they would simply look at the name on the deeds. Because of this, I am looking at changing ownership to be in joint name, but cannot work out if I will be liable for stamp duty by doing this.

Can anyone comment on whether any of the above is correct?

Many thanks.

bargainhunter_3-2

You can transfer assets between you and your wife without any tax being payable so there is no issue with you transfering half (or all) of the house to her. If you transfer half the house to her you can use both personal allowances to reduce the amount of tax due. If total profit (rental income minus direct costs) is less than your combined personal allowances (it probably will be if rent is £11,000 per year) then you will pay no tax at all, assuming you have no other taxable income in the UK.

http://www.digita.com/tiscali/home/savingtax/savingtaxmarried/default.asp

GDB2222

But if you are ordinarily resident in the UK, will you have a liability to UK tax on your US earnings? And if reseident in the US, won't they want to tax you on your worldwide income,. Then there's the DTA. This is potentially far, far more complicated than you are making out, and you should seek specialised tax advice, which unfortunately won't be cheap.

chipotle_2

hi there

the guys in the forums at britishexpats.com are usually very friendly helpful and there's usually at least one expert on things like immigration/taxes/housing etc. if you don't want to register to ask the question, just do a search, i'm sure someone else will have had the same question as you before!

best of luck


chipotle

Scr00ge

GDB2222 wrote: »

But if you are ordinarily resident in the UK, will you have a liability to UK tax on your US earnings? And if reseident in the US, won't they want to tax you on your worldwide income,. Then there's the DTA. This is potentially far, far more complicated than you are making out, and you should seek specialised tax advice, which unfortunately won't be cheap.

Thanks GDB2222. I have professional tax people preparing both my USA tax return and my UK tax return, the only problem is that they are not prepared to give "tax advice"... which seems to also mean they won't try to help me understand all the details so I can work out the most tax efficient way!!

The way my UK tax is prepared seems to exclude everything I get from savings interest in the UK, but it does include the rental income. My USA tax does take into account all of my worldwide income. What is the DTA?

I was trying to avoid specialised tax advice as I assume it wouldn't be cheap, but I was trying to put together different opinions on it from the different responses here, and make my own decision based on that.

gfplux

As you are registered for tax in the USA it would be a simple first step to ask the UK inland revenue to allow all your UK income to be free of tax. This would then mean you have only one (the USA) tax form to complete.
This should be a very straightforward if you do not intend to return to the UK. (why would you!) However if you do then do as bargainhunter says.

Scr00ge

gfplux wrote: »

As you are registered for tax in the USA it would be a simple first step to ask the UK inland revenue to allow all your UK income to be free of tax. This would then mean you have only one (the USA) tax form to complete.
This should be a very straightforward if you do not intend to return to the UK. (why would you!) However if you do then do as bargainhunter says.

I didn't think I could do this with the rental income on the UK house... I thought I would always have to pay tax in the UK on this.

Mutton_Geoff

You can have UK income paid without tax if you are earning it outside of the UK and are "not ordinarily resident". This doesn't apply to rental income as you're effectively earning it in the UK. Your normal tax bands apply, so there will be an element without tax, but the answer is to get the property mortgaged so you can offset the income against mortgage interest.

Expat tax advice isn't expensive, I worked abroad for almost 10 years and used a provincial high street firm who were great at sorting everything out re UK income, rental property etc etc. I don't think I ever paid more than about £500 a year for the whole lot inc self employment, tax return, rented house etc

Scr00ge

Mutton_Geoff wrote: »

You can have UK income paid without tax if you are earning it outside of the UK and are "not ordinarily resident". This doesn't apply to rental income as you're effectively earning it in the UK. Your normal tax bands apply, so there will be an element without tax, but the answer is to get the property mortgaged so you can offset the income against mortgage interest.

Expat tax advice isn't expensive, I worked abroad for almost 10 years and used a provincial high street firm who were great at sorting everything out re UK income, rental property etc etc. I don't think I ever paid more than about £500 a year for the whole lot inc self employment, tax return, rented house etc

Thanks Mutton Geoff - that was what I have worked out so far, but I have already lost one year to the taxman before realising this, where I should have changed the deeds to be joint ownership with my wife. I totally agree with you regarding the mortgage, but this is only interesting if I need the money or have another investment to put the money in that pays better than the mortgage. So the only "moneysaving" I can see is to make sure I use both my tax free personal allowance and my wife's.

Regarding tax advice, my company already pay for my taxes to be prepared by PWC, but they tell me they are only being paid to prepare my taxes, and not give advice. Because of this, I don't really want to even pay £500 more a year, when I thought I could learn a lot from the experts here and do it myself.