tax on rental income for non-EU resident abroad

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    tax on rental income for non-EU resident abroad

    My wife and I are joint owner of the house in England where we resided many years before moving to Germany.

    We let this house, and we report the income to HMRC.
    For my wife, her share of this rental income is about 70% of her total UK income (the rest is from a small business, that although we are resident in Germany, is still registered in the UK), whereas for me this is my total UK income.
    The total UK income of my wife is well below the personal tax allowance.

    Unlike me, my wife is citizen of a non-EU Country. Added to the fact that she is also resident outside the UK, HMRC says she does not benefit from the personal tax allowance.
    The German treasury is aware of this income of ours, and does not tax it (for neither of us).

    What if my wife were to sell (or donate) her 50% of our house to me, this will reduce our total tax burden, right?
    Are we allowed to do so? Any other implications...?
    Even including some legal cost, I suspect in the long term it will pay off.
    Anything else we should take into consideration?

    Thanks,

    #2
    What nationality passport do you and your wife hold ?

    For property registered jointly under husband and wife's name, the tax office assume the income will be shared 50/50 . But you can change the distribution of income to say 10% / 90% by submitting a Form 17 ( form cannot be served backdated ).

    Comment


      #3
      Originally posted by Gordon999 View Post
      What nationality passport do you and your wife hold ?

      For property registered jointly under husband and wife's name, the tax office assume the income will be shared 50/50 . But you can change the distribution of income to say 10% / 90% by submitting a Form 17 ( form cannot be served backdated ).
      Thanks, Gordon, very useful, I was not aware of this Form17.
      For the record: I am Italian, my wife is Japanese. But exact nationalities do not really matter, HMRC only looks at whether on is citizen of an EU-country or not.
      About Form 17 HMRC also says

      If you live with a spouse or civil partner and have income from property you jointly own, you’ll normally be taxed on an even split of the income between you.
      Use this form if you want to change the split of income to your actual share of ownership.
      You’ll also need to provide evidence that your beneficial interests in the property are unequal, for example a declaration or deed.


      What does the last sentence exactly mean? What would they accept as evidence?
      Thank you,

      Alberto

      Comment


        #4
        Gordon99,

        thanks again but I am afraid Form17 will not do.
        It's like this: HMRC assumes by default the property is owned 50/50, and therefore the income is 50/50. If the ownership is different than 50/50, say 60/40 or 90/10 (and therefore the income as well), you can tell HMRC via Form17, so they will tax the income accordingly.
        It specifically says the form cannot be used to "redistribute" the income in shares different than the ownership.
        Cheers,

        Comment


          #5
          Originally posted by Gambatte View Post
          Gordon99,

          thanks again but I am afraid Form17 will not do.
          It's like this: HMRC assumes by default the property is owned 50/50, and therefore the income is 50/50. If the ownership is different than 50/50, say 60/40 or 90/10 (and therefore the income as well), you can tell HMRC via Form17, so they will tax the income accordingly.
          It specifically says the form cannot be used to "redistribute" the income in shares different than the ownership.
          Cheers,

          I found this info :


          Q. If I acquire Italian citizenship jure sanguinis, is my spouse eligible to become an Italian citizen?

          A. Yes. The principle of jure sanguinis is that, if you qualify for Italian citizenship through ancestry, you have actually been an Italian citizen since birth. This process simply recognizes the citizenship you already possess. The Italian law states that spouses of Italian citizens can apply for citizenship after six months of marriage if a couple is living in Italy and after three years of marriage if they are living abroad. Consider a person living outside of Italy who has already been married for over three years. Once he or she is recognized as an Italian citizen jure sanguinis, the spouse may apply for Italian citizenship immediately! Why? Because the Italian has been a citizen since birth and the couple has been married for over three years.

          Comment


            #6
            To change the proportions of ownership you need to own the property as tenants in common (not as joint tenants).
            This is fairly easy to do (although if there's a mortgage on the property, the lender may have an issue, particularly if the mortgage is not in both names).
            Then a solicitor creates a deed of trust to change the ownership from the presumed 50:50 ownership to the proportions you require, the form 17 simply tells HMRC about the change.

            At some point in the future, you can change the proportions of ownership to a different ratio (a year or so before you sell the property for example).
            When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
            Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

            Comment


              #7
              @Gordon999
              if she were to acquire Italian citizenship Japan will request she renounce to her original Japanese citizenship, which she won't be prepared to (not even for paying less tax).

              @jpkeates
              I think that's it. Just I wonder if there is some "hidden" drawback in this, or if we even are allowed to do so. Perhaps HMRC will stand up and shout: "you are doing this only to pay less tax, we simply don't let you do it". Dunno. Your disclaimer is spot on, we must speak to some "grown up professional". Dunno if we need a solicitor, or a tax advisor, or both, of course I'd much prefer to speak only to one professional, rather than to several.
              Yes, Form17 is "only" to inform HMRC about the share being different than 50:50, right now not yet useful.

              Comment


                #8
                It's quite legal and HMRC won't object (the process is pretty much only used to reduce tax).
                UK tax follows a concept called beneficial ownership rather than title, and the rules recognise that married couples can arrange their affairs differently.
                When you look into it, you'll find it's quite routine.

                You will need a solicitor to draw up the necessary paperwork and they'll a) reassure you it's fine and b) point out any downsides.
                You can obviously take tax advice as well which might help to get the split right, but the solicitor should be able to do it (if they don't fill you with confidence use someone else).
                When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
                Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

                Comment


                  #9
                  jpkeates, thanks

                  Comment

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