Tax implications of rental property in UK

I own a rental property in the UK.

This was my own private residence up to the end of 2006, when I moved back to Ireland.

I rent it out (privately) for a rent that just about covers the interest only mortgage + service charges (I took out as much equity as I could, in order to minimise my exposure to GBP versus euro exchange rates).

Obviously my mortgage capital is not being paid off, so the plan / expectation was that I would gain on the value of the property over the next number of years (the property is in an area that is getting the East London Line extension, and is considered to be 'up and coming').

Leaving aside the fact that its been a bad year for UK property, and that the value of the remaining equity has also depreciated in euro terms, this is still the plan. I just want to keep my tenants happy and in the place, paying off the costs of owning it, and hopefully it'll come good over the next few years.

I should have given this more thought at the time but to be honest I was too busy with moving country, a new baby, a new contract etc, so I just did it this way as a holding position.

OK, that's the background.

I need to deal with this now as I have just been sent my UK Self Assessment for 2007/2008 (I was earning fees in the UK through my company up to June 2007).

I intend to declare the situation as outlined above (mortgage interest + fees = rent).

My questions are:
1. will I be liable for income tax on this, given that there is no net income?

2. will I be liable for CG tax on this when I go to sell in the future?

3. What form will this take?

4. Will it be payable to the UK or to IRL?

5. Is there any way to minimise this?

Any anwers / advice / pointers to sources of info would be greatly appreciated, thanks.

There are several points here -

1) You should be registered in the UK as a non-resident landlord. Have you done this?
2) You will need to complete a UK tax return each year declaring any profit - you will only be taxable in the UK if there is a taxable profit (you will also be entitled to UK personal allowances etc as an EU citizen even if non-resident)
3) You will also have to declare your rental income on your Irish tax return, but again, if no taxable profit - no tax liability
4) If you remain non-UK resient (more than 5 years out of the UK) there will be no liaibilty to UK CGT, however, as an Irish resident you will be liable to Irish CGT.

Thanks for your help Domo.

1) You should be registered in the UK as a non-resident landlord. Have you done this?
No. Thanks for the tip-off, I will look into this. Hope I don't have to have the place inspected or any of that hassle, but guess I will do what I have to.

2) You will need to complete a UK tax return each year declaring any profit - you will only be taxable in the UK if there is a taxable profit (you will also be entitled to UK personal allowances etc as an EU citizen even if non-resident)
Ok that makes sense.

3) You will also have to declare your rental income on your Irish tax return, but again, if no taxable profit - no tax liability

Ok that makes sense too.

4) If you remain non-UK resient (more than 5 years out of the UK) there will be no liaibilty to UK CGT, however, as an Irish resident you will be liable to Irish CGT.

I intend to remain Irish resident.

Is there any way to minimise the Irish CGT e.g. by reinvesting the profit?

Would I be liable for CGT based on the increase in value since I first bought it 5 or 6 years ago, or since I started to rent it out?

eamonn123456 said:

Is there any way to minimise the Irish CGT e.g. by reinvesting the profit?

Click to expand...

No - rollover relief was abolished a good few years back.

Would I be liable for CGT based on the increase in value since I first bought it 5 or 6 years ago, or since I started to rent it out?

Click to expand...

The usual rule here is that you work out the total gain (very roughly the selling price minus the original acquisition price (possibly indexed for inflation) minus any allowable costs etc.) and then a proportion of that linked to how long it was rented out is assessable for CGT. For example if the property was your home for 6 years and then rented out for 4 years before being sold then (4-1)/(6+4) = 30% of any overall gain would be assessable for CGT (4-1 because the first 12 months after vacating it as your home is exempt). I presume that the same rules apply even if the property is abroad.

To register as a non-resident landlorc complete a Form NRL1 and submit it to your tax office. This is so that you can receive our rent paid gross. If your UK tax affairs are up to date I would see no problem with this.

Did you use an Estate agent to rent it out? Did they not advise you in this regard? Have they been withholding tax from the rent paid over to you?

Thanks for the advice Clubman.

Domo, thanks for the advice regarding the form, I should be ok for that as I am up to date with UK taxman.

I didn't use an EA, found my own tenants and have been managing it myself, so far so good, fingers crossed.

And you can download the NRL1 form (Non Resident Landlord) from the HM Revenue website, fill it out and send it back to them ...