Tax on rental property while sailing overseas??

[Oscarpop]

So, I guess we have started the wheel turning to finally set sail, sell up and go. We intend to spend at least one year away, hopefully many more.
Its a few years away, but the wheels are in motion.

Now starts the saving and addressing the rental of our property.

Can anyone please advise what the situation is regarding HMRC?
From what I can see we can rent out our flats at about £4000 per month in total.
Once we have made deductions for letting agents and service charges we have about 38k a year.
Are there any special rules regarding being overseas on a boat?
Can we deduct anything from our tax as deductable if we are living aboard and our of territorial waters?
I looked into the non dom thing, and it was horrendously complicated.
All advise appreciated.

Many thanks.

 

[duncan99210]

We rent out our house whilst we're sailing. The house is in my wife's name and as her only income is the rent and it is below the tax threshold, she makes a declaration to that effect to HMRC and the income from the house is paid to her with no tax deducted. That's the simple bit!

In your case, the income from you properties will be well over the threshold, even if you split your holding down the middle. As I understand it, you will be liable for income tax on this income no matter where you are in the world, as the income is earned in the UK. You letting agents are obliged to deduct income tax from the rental income and pay it direct to HMRC on your behalf - bit like PAYE.

All that said, I only know anything at all about this because I looked at trying to get my pension paid to me overseas tax free and coudn't find a way to do it that didn't entail me taking up residence in another country such as Cyprus that has specific reciprical arrangements with UK.

If I were you, with an income of the size you mention, I would talk to a good tax accuntant to see what they can do for you. There may be some sort of scheme which would minimise your liability to income tax on your UK income - but don't hold your breath....

 

[Tranona]

As ever - it all depends. There are no specific issues related to being on a boat out of territorial waters, any more than being out of the country for any other reason. Be aware however, that it is possible to end up being resident for tax purposes in another country.

Unless you are going "permanently" and do not expect any income in UK forget about becoming non-resident. The difficulties of meeting the requirements will become obvious when you start looking, the losses potentially large and the benefits only really come if you have substantial non UK income.

Most people stay UK resident as they have to pay tax on their UK income anyway, and also maintain a "prescence" in the UK such as an address and remaining registered with a GP, as you may find for example you could lose your right to NHS treatment if you are out of the country for more than 3 months.

You will have to pay tax on your rental income, but you can offset costs, including interest charges. However, be aware that not all mortgage providers will allow you to rent out your properties, and you need to comply with the principal residence requirements when you come to sell to avoid potential capital gains tax.

Unless you have the expertise, there is a strong case for seeking professional advice on how best to arrange your affairs. You will probably need to file self assessment returns, so having this done professionally can take a load off your mind and probably save you money.

 

[KellysEye]

As said any UK income, icluding bank interst will be taxable. Also if you are away for only one (full tax) year you cannot claim not resident and not ordinarily resident. To get that status you generally need to have a fixed address abroad plus paying tax in the country. If it's Europe and you stay in one country for more than six months you have to become resident. Move around and you don't. However, there is a four year rule that if you have no fixed residence (sailing) for that time then you can apply for not resident and not ordinirily resident. Which is what we did, because we had moved alll our money offshore. Note: we found out about the four year rule from our accountant who specialises in not res and not dom. It's funny everybody including newspapers say non resident, the HMRC form confirming tax status says not.

The NHS is a bit of a side issue. Also as said if you are out of the country for three months you lose the entitlement for treatment. However, if you come back permanently you get straight back in. If you are moving around Europe get European Health Insurance Card, EHIC (formerly the E111), I think they are available at Post Offices.
.
We do know someone who went back for treatment after a few years and had no problem, she was not asked if she was resident just for her NHS number. If asked she would have given their UK holding address used to forward mail.

 

[RobbieW]

The NHS is a bit of a side issue. Also as said if you are out of the country for three months you lose the entitlement for treatment. However, if you come back permanently you get straight back in.

Anyone know why this is ? After all we are mostly still paying tax in the UK on income from there whether thats pension, property or whatever. If thats the only income one has why does it matter where you choose to be physically ?

 

[Tranona]

Anyone know why this is ? After all we are mostly still paying tax in the UK on income from there whether thats pension, property or whatever. If thats the only income one has why does it matter where you choose to be physically ?

Because entitlement to free NHS treatment is a function of residence, not of liability for tax The NHS regulations on who is entitled to treatment is separate from tax. The "3 month" rule is designed to control "health tourism" - that is people who live overseas for much of the time but come to UK to gain access to free treatment.

It is not rigorously enforced, but it gives a hospital the opportunity to refuse free treatment to people they think are trying to take advantage. If you are a UK resident and you maintain all thee appearances of still being based in UK it is unlikely that you will be refused. Keep GP registration and access hospital treatment through referral by GP. The rules also allow for retuerning and taking up residence.

If, however, you become resident in another country you can then become subject to their treatment regime. If it is within the EU, the EHIC copes with most eventualities.

 

[Relax]

I have spent most of the last 25 years out of the UK and "non-res non-dom".

Not withstanding what others have said this is not rocket science - to qualify you need to (firstly and importantly) make a clean break - no going back for a month after a short time, secondly you need to be away for a complete year (NOT a complete tax year - you need to read ALL of the HMRC bumf) and thirdly you should fill in a form informing HMRC that you have done this. Sorry I can't remember the form number - but it obviously works because having done this last year on departure to Kuwait HMRC helpfully posted a note to my address in Kuwait to remind me to submit my tax return and pay my tax by 31 January - which arrived on 2 February!

Having said all of the above I can't see how this applies to you - unless you are actually earning outwith the UK? Your earnings from property in the UK (like mine) will be subject to tax in the usual way. Anything you earn in the UK no matter where you are located will be subject to tax.

Many people make a big issue out of this and insist that you need to pay an accountant to "handle your affairs" and fill and submit your tax form - not so. We have been filling a return for the last 7 or 8 years with no real problems. Yes it is a hassle and if you are scared of official forms is daunting but for anyone of average intelligence it only takes time and a little effort - the worst thing would be to leave this until the middle of January to start filling the forms - disaster! It was costing us sis or seven hundred a year for the accountant - not worth it, but I dare say someone will do this for less.

I am contemplating the same as you in the near future (1-2 years) so need to have all the financial ducks in a row - but don't intend to rent my house. We have recently started using an agency to rent flats, rather than doing it ourselves - worth it so far, they have a better handle on the market and are no hassle. Suppose it depends on the agent?

 

[temptress]

I have spent most of .... years out of the UK and "non-res non-dom".

Not withstanding what others have said this is not rocket science - to qualify you need to (firstly and importantly) make a clean break - no going back for a month after a short time, secondly you need to be away for a complete year (NOT a complete tax year - you need to read ALL of the HMRC bumf) and thirdly you should fill in a form informing HMRC that you have done this. Sorry I can't remember the form number - but it obviously works because having done this last year on departure to Kuwait HMRC helpfully posted a note to my address in Kuwait to remind me to submit my tax return and pay my tax by 31 January - which arrived on 2 February!

...... Your earnings from property in the UK (like mine) will be subject to tax in the usual way. Anything you earn in the UK no matter where you are located will be subject to tax.

Many people make a big issue out of this and insist that you need to pay an accountant to "handle your affairs" and fill and submit your tax form - ...... It was costing us sis or seven hundred a year for the accountant - not worth it, but I dare say someone will do this for less.

...... We have recently started using an agency to rent flats, rather than doing it ourselves - worth it so far, they have a better handle on the market and are no hassle. Suppose it depends on the agent?

I am in much the same situation. look at the HMRC form IR95 - you need to fill that in to declare you are leaving the country. Contrary to popular belief you do not need to say where you are going or PROVIDE an address abroad a C/O address in the UK is acceptable. You do need to leave the country and if you return to live (as opposed to a short holiday or family emergency) in less than 5 years you may be liable to back-taxes. This situation changes regularly so either read-up on it regularly or pay someone else to do that for you.

I have to say that having used an accountant for most of the 20+ years i have been away from the UK I have found it easier to do it myself recently. Easy access to the internet and online information have helped. We have always used agents in the UK to look after our rental property.

Your income inside the UK is Taxable and you need to do a tax return, take advantage of all the allowances, deductibles etc that you can? Share the income with your wife? Each personal situation is different and what works for one person may not work for the next.

If you are truly mobile and not living in the UK then it is relatively straightforward to manage and I have found HMRC to be reasonable and even helpful over the last 20+ years. Remember if you stay put somewhere else you may become resident there and are always subject to their laws while you are in their country no matter how short your stay.

 

[temptress]

......You letting agents are obliged to deduct income tax from the rental income and pay it direct to HMRC on your behalf - bit like PAYE.......

Not so. Fill in the HMRC form NRL1 (Non-resident landlord 1) and your agents can pay you gross. You are still liable for TAX and it is your responsibility to account for it, do a tax return each year to HMRC and pay any tax liability.

 

[lovezoo]

Not so. Fill in the HMRC form NRL1 (Non-resident landlord 1) and your agents can pay you gross. You are still liable for TAX and it is your responsibility to account for it, do a tax return each year to HMRC and pay any tax liability.

Yep, that is what we do as we are still UK taxpayers. It might be easier just not to tell the letting agents you will be abroad to avoid this confusion in the first place.

 

[Otter]

Lots of deductions possible from the rent, make sure the flats are kept in perfect condition maintenance wise - taxman pays 20% of the cost.

 

[KellysEye]

>Keep GP registration and access hospital treatment through referral by GP. The rules also allow for retuerning and taking up residence.

From memory the GP dropped us after three years away.

Bear in mind that if you rent out property for a long time when you sell you wil be liable to capital gains tax when you sell the property. We sold two rented properties before we came back, we could avoid the tax because we were not resident. From memory, if the rental is a short period you don't pay provided you live in it for a further three years.