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Thread: NZ Tax on a UK rental property

  1. #1
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    Default NZ Tax on a UK rental property

    Hi

    Hopefully someone can advise me.

    I have been a resident in NZ for tax purposes for the past 6 years.

    I own a small apartment in the UK which I'm mortgage free on and I receive a rental income.

    I have been informed in the past by the Inland Revenue in the UK that as the property is in the UK I am always liable to tax in the Uk. I know that under the double taxation agreement between the UK and NZ I only have to pay tax in one country.

    However we have a personal allowance in the UK where individuals can earn up to around £10,000 before they have to pay tax in the UK.

    My annual rental income is around £6,000 and so when I complete my UK tax return I do not have to pay any tax on it in the UK.

    I have been paying tax to IRD in NZ on this rental income as I haven't been required to pay tax on it in the UK and I just wanted to check that I am required to do so.

    Can anyone with any specialist knowledge advise.

    Thanks, Ian

  2. #2
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    Nov 2012
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    Default

    Quote Originally Posted by ian5708 View Post
    Hi

    Hopefully someone can advise me.

    I have been a resident in NZ for tax purposes for the past 6 years.

    I own a small apartment in the UK which I'm mortgage free on and I receive a rental income.

    I have been informed in the past by the Inland Revenue in the UK that as the property is in the UK I am always liable to tax in the Uk. I know that under the double taxation agreement between the UK and NZ I only have to pay tax in one country.

    However we have a personal allowance in the UK where individuals can earn up to around £10,000 before they have to pay tax in the UK.

    My annual rental income is around £6,000 and so when I complete my UK tax return I do not have to pay any tax on it in the UK.

    I have been paying tax to IRD in NZ on this rental income as I haven't been required to pay tax on it in the UK and I just wanted to check that I am required to do so.

    Can anyone with any specialist knowledge advise.

    Thanks, Ian
    Hi Ian

    I am a tax specialist. Under the Double Tax Agreement, NZ still retains the right to also tax the rental income but will give you a tax credit for any UK tax paid on the rental income.

    So you are required to pay NZ tax on the rental income, and the Double Tax Agreement does not change this.

    If you were a "transitional resident" for the 48 months after you arrived here, then that is an exception to the above and NZ tax law would not have imposed tax for that 48 month period. If you did pay tax on the UK rents in NZ during that first 4 years of residence, then you probably should not have and may be entitled to get some or all of it back. If you think this applies to you and you would like some help with this, send me a private message.

    Chris

  3. #3
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    Default

    I am a tax specialist. Under the Double Tax Agreement, NZ still retains the right to also tax the rental income but will give you a tax credit for any UK tax paid on the rental income.
    Which effectively means zero tax credit because the person does not exceed the £10K threshold under UK income tax. In any case where double taxation agreements between 2 countries, the person's effective tax rate ends up being the country that has the highest tax.

  4. #4
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    Quote Originally Posted by Super_BQ View Post
    Which effectively means zero tax credit because the person does not exceed the £10K threshold under UK income tax. In any case where double taxation agreements between 2 countries, the person's effective tax rate ends up being the country that has the highest tax.
    Yes, although I understand that not every non-resident of the UK is entitled to the benefit of the tax-free allowances so it is possible for UK tax to be imposed from the first £1 of income. See the extract below from the HMRC website:

    "Tax-free allowances for non-residents

    If you're a European Economic Area citizen (including British), or a current or former Crown employee, you will get the UK Personal Allowance to reduce the amount of UK Income Tax due. If you are a Commonwealth citizen you will only get the Personal Allowance for tax year 2009-10 and earlier years. You may still qualify in later tax years depending on the relevant double taxation treaty with the UK. Members of certain other special groups also qualify - see part 5 of the 'RDR1 - Residence, domicile and the remittance basis' guidance notes and part 6 of the booklet HMRC6 'Residence, Domicile and the Remittance Basis'
    " [/I][http://www.hmrc.gov.uk/international...megains.htm#6]

    It is also worth noting that if Ian did qualify for the UK tax-free allowances and the NZ 48 months transitional resident exemption, then neither country would impose tax and he would have a tax rate of 0% on the UK rents during that 48 month period.

  5. #5
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    Mar 2013
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    Hi Chris and Super BQ.

    Thanks for your replies. I did take advantage of the 4 year temporary tax expemption and during this period I did not pay tax on my rental income in the UK or in New Zealand. This exemption expired in May 2012 and I paid NZ tax on my rental income since this date and filed UK returns and paid nothing to the Uk. IR. I also have a monthly superannuation police pension paid to me monthly and again I started paying NZ tax on this since April 2012. I did not pay tax on this pension in the UK or NZ from the date I became classed as a resident for tax purposes in NZ for the 48 months.

    I just wanted to check that I am paying the correct amount of tax. I am self employed, I've always done my NZ IR3 returns online myself and my return in the Uk online since renting my property out and not used the services of an accountant other than for tax advice.

  6. #6
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    Quote Originally Posted by ian5708 View Post
    Hi Chris and Super BQ.

    Thanks for your replies. I did take advantage of the 4 year temporary tax expemption and during this period I did not pay tax on my rental income in the UK or in New Zealand. This exemption expired in May 2012 and I paid NZ tax on my rental income since this date and filed UK returns and paid nothing to the Uk. IR. I also have a monthly superannuation police pension paid to me monthly and again I started paying NZ tax on this since April 2012. I did not pay tax on this pension in the UK or NZ from the date I became classed as a resident for tax purposes in NZ for the 48 months.

    I just wanted to check that I am paying the correct amount of tax. I am self employed, I've always done my NZ IR3 returns online myself and my return in the Uk online since renting my property out and not used the services of an accountant other than for tax advice.
    Hi Ian

    Based on everything you have said, I believe you are paying the correct amount of tax

    Chris

  7. #7
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    Default

    It is also worth noting that if Ian did qualify for the UK tax-free allowances and the NZ 48 months transitional resident exemption, then neither country would impose tax and he would have a tax rate of 0% on the UK rents during that 48 month period.
    0% only because he doesn't exceed UK's minimum taxable income threshold.

    There's an underlying meaning on NZ's 4 year tax exemption. I view it as a way for IRD to keep records for those income generating assets (to expose the assets where one would prefer to keep them off shore)

  8. #8
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    Quote Originally Posted by Super_BQ View Post
    0% only because he doesn't exceed UK's minimum taxable income threshold.

    There's an underlying meaning on NZ's 4 year tax exemption. I view it as a way for IRD to keep records for those income generating assets (to expose the assets where one would prefer to keep them off shore)
    Thanks Super BQ. As far as I am aware, there is no requirement for a new resident to disclose any offshore assets during that 48 month period so the IRD would not be provided with any information on them. Also, I have found many clients will convert those assets to cash during that period so they are not there at month 49 either

  9. #9
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    Quote Originally Posted by chrisl34 View Post
    Thanks Super BQ. As far as I am aware, there is no requirement for a new resident to disclose any offshore assets during that 48 month period so the IRD would not be provided with any information on them. Also, I have found many clients will convert those assets to cash during that period so they are not there at month 49 either
    This was certainly correct. The IRD booklet giving information on Temporary Tax Exemptions stated that there was no requirement to provide details and amounts of income derived from overseas that were exempt during the 48 month period.

  10. #10
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    Hi Chris and Ian,
    I am puzzling over this and am hoping one or both of you could shed some light to this: Should we re-mortgage (borrow against) our UK property to pay off our NZ debt on our Family Trust.

    Cashflow wise it makes sense:
    Our UK property is making a profit. We could re-mortgage and have the rental income cover the increased mortgage and expenses. Currently we are paying tax to the NZ IRD on the profit from the UK property. If we re-mortgaged we would be paying less tax as we would be making less profit.

    Bringing the money across we can pay off a chunk of our NZ mortgage held by our Family Trust. Then we could start paying off a table loan mortgage with the current repayment amounts to our interest only loan.

    Is there anything we need to be aware of with bringing the money over from the UK - eg. flutuations from foreign exchange ? I was told that the interest on the additional sum of money could not be tax deductable on the UK rental income. This I do not understand - am hoping you could shed some light? Thanks in advance.

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