I have been working with several retired clients whose children live in the UK. Typically the client wants to buy a UK property to spend the summer months in the UK and spend quality time with their grandchildren. Clients may also buy a UK property for rental purposes.
The clients are concerned about the UK tax implications of buying a property in the UK and becoming tax resident in the UK. I thought some readers may be in the same situation and want some general information on the tax implications.
There may UK tax implications for Income Tax, Capital Gains Tax and Inheritance Tax.
If you are a New Zealand tax resident and buy a property and rent it out in the UK you will be considered a non-resident landlord for UK income tax purposes. Therefore your tenant or letting agency (if you have one) will be required to deduct tax at source and pay it to HM Revenue and Customs (HMRC) on your behalf. You can elect out of this, which will probably be beneficial as quite often your net rents are less than your UK tax free personal allowances which are currently £10,000 per year. You will have to declare your UK rents in your NZ tax return but if you elect out of the non-resident landlord scheme you don’t have the hassle of trying to get your UK tax back from HMRC.
Capital Gains Tax will be on the profit on sale of the property less a tax free band of £11,000. Note that at this stage there is no capital gains tax on UK property purchased by non-residents but the wheels are in motion within the UK Government to change this. If you move to the UK and live in that property then you can elect for that property to be your principal private residence and that exempts the property from Capital Gains Tax. Note that if you become resident in the UK you will be liable to Capital Gains tax on your worldwide capital gains so your NZ property could be dragged into the UK tax net if you sell it.
If you become resident but non domiciled in the UK you can elect to be taxed on the remittance basis on your overseas income/gains. This means that that you only pay tax in the UK on funds remitted to the UK. However once you have been resident in the UK for 7 years there is a punitive tax charge so you will need to time your asset sales carefully. A point of caution here would be to ensure you buy your UK property before you become a UK tax resident, otherwise HMRC will start having a look at that remittance (the hundreds of thousands of pounds you transfer to the UK to buy a property) for any tax implications.
Note also that buying property in the UK makes you subject to Inheritance Tax on your UK assets. The tax free threshold is £325,000 but there is also a tax free transfer between spouses. Former UK citizens need to be wary that they don’t accidentally change their domicile back to the UK as they will then be liable for UK Inheritance Tax on their worldwide estate.
If you are considering such a purchase or moving to the UK I would advise that you consult someone such as myself to discuss the above taxes and your personal situation in detail.