Rental Income in the UK – for Expats

It always used to be quite common for Expats to buy a property or 2, then rent them out for a few years, and then sell them at some point. Paying a bit of tax on the rental income, and then nothing when the property is sold.

What has changed regarding the sale/purchase of these properties – 3 major changes – see the article on BTL Changes for Expats.

What must you consider for the rental income for Expats?

1. If you are a resident for tax purposes in the UK, then you will be entitled to the Personal Allowance in each tax year in which you ARE resident. This amounts to £11,000 per person per tax year – and it is going up.
2. The Personal Allowance of £11,000 is due to ALL Commonwealth members regardless of residency (think Australia, New Zealand and South Africa).
3. Properties are often owned in joint names between husband and wife – so they can get the first £22,000 tax free per year.

Example:

John has a property in the UK that he owns equally with his wife.

He lives all the time in Australia now.

The property is rented out at £450 per week.

That would be £450 x 52 weeks = £23,400

He spends £1,500 throughout the year on various expenses associated with the property leaving profit in the amount of £21,900.

This amount IS taxable of course.

But the amount of tax actually due to be paid – is ZERO.

A lot of people do either this or some sort of variation on this.

4. It does depend on the number of properties that you actually own.

If you own a property or even 2, 3 or even 4 properties as effectively a Buy-2-Let investment – then it won’t make any sense to do anything differently.

However – if you own, say 10 properties and are really getting close to a real ‘property portfolio’ – then it may be worth thinking about what else you could do.

Why is that?

That is because it is really important to use up your Personal Allowance each year as an Expat to offset as much if not all of your rental income as possible.

However, as the amount of rental properties that you own go up, then the profits will also go up – inevitably – and then what is important is ensuring that the ‘profit’ received from renting out these properties is as low as possible – to ensure the lowest incidence of taxation!

How do we achieve this – not by doing nothing!

Any and all Buy-2-Let properties that are held in the name of a Ltd Company, will still get 100% tax relief on all mortgage interest paid – payments made this way are regarded as a ‘business expense’ and are thus fully deductible.

So we know that mortgage interest relief is being restricted from 6 April 2017 – see the article on BTL Changes for Expats.

We need to ultimately have a property company established that is effectively buying and selling and renting out properties.

There are a number of hoops to jump through to get there but if you think that this may apply – then please do e-mail in the first instance at [email protected] and we will do our best to help – remember – it costs nothing to find out.