Moving to USA - Renting my house in London

[Coralieconfused]

Hi everyone!

I’m so glad I found this platform, everything online is so confusing and scary and I hope I can get some advice from here instead..

My husband and I are moving to the USA in October this year, and we need to rend out our home in order to cover its costs.

It seems like in 2021/2022 we are no longer allowed to deduct mortgage interest from our taxable income - which is really really problematic…

I would like to understand how much tax we need to pay on our home is we make £2.1k per month in rent, and have £2.5k of costs per month, of which 1.1k is mortgage interest, 0.9k is equity mortgage payment and the balance of 0.5k is service charge/ground rent/management fee.

Please also note that we are both moving back to US employment and will no longer be paying income tax in the UK, but will be fully employed and paying tax in the USA ( roughly $160k combined).

Since we will be getting revenue from our home in the uk we will have to make a self assessment tax return, however the tax rate is mainly based on our income tax rate, would this then be £0 per year in the UK? Or do we need to state our American employment income? Would we qualify for the first £11k tax free?

If we have to base this tax return on our American income then we’re basically totally screwed and won’t be able to leave without selling the house as we’ll make an out of pocket loss of £8/£10k per year!

Apologies for the novel I’m just trying to cover all grounds..

Thanks so much in advance - any help is really appreciated.

Thanks,
Coralie

[Jholm]

Due to the complexities involved with non-residency and double taxation relief (since you will be reporting the rental income in two countries), I strongly urge you to appoint an official tax adviser on the matter.

[darthblingbling]

Some basics.

You can't claim interest as an expense for a residential let, but you can claim it as a basic rate tax deduction.

So long as you're a UK citizen then you'll get the personal allowance. But you need to claim this as a non tax resident as it's not automatically given on your tax return. Speaking of tax returns, be aware that doing your tax return online via HMRC is not possible as a non resident, you will either need to file on paper by 31 October or use commercial software/professional service to file online.

If you're non UK resident then you will be taxable only on your UK sourced income. So your US employment income will not be taxable or reportable in the UK assuming you do not exercise any of your duties here.

Your rental income will be taxable in the US, they have different rules on allowable expenses and you will need to claim depreciation on the property as an expense. There will be further tax implications down the line on the depreciation if you sell your property whilst still tax resident in the US. Any UK arising should be allowable as a foreign tax credit in the US.

If you do sell your property whilst non resident, the UK has specific rules on reporting and cost basis for residential property.

Strictly speaking you will need to register as a non resident landlord (NRL1 form) otherwise HMRC may expect your tenant or estate agent to withhold basic rate tax from your rent.

For piece of mind you may want to appoint a specialist, they're are a few that specialise in both US/UK expat taxes. There is one who hangs about this forum.

[DavidTreitel]

Based on the numbers provided and from a UK income tax perspective, it sounds as if the profit will be below the level of your combined UK personal allowances. Consequently I would expect very little, if any, UK income tax on the rental profit. In the US there is unlikely to be a profit because you will claim both mortgage interest and depreciation as expenses.

Should you decide to sell the property whilst living in the US, you will want to review the possible US tax issues relating to losing the $500,000 exemption in the future once you have ceased to use the property as a main residence.