Non-UK-resident landlord

[Rob625]

We moved to Italy several years ago, and have now started renting out our London flat. I wanted to sell, but my wife and one of my sons were very keen to keep it and let it, so the idea is that they are doing all the work of looking after letting. I'm leaving it to them as much as I can, but every now and then something comes up that I feel I have to attend to, and the following question is an example.

The agent is asking whether we have a Residential Landlord Certificate. We don't, and my inderstanding is that if we did it would not make much difference to us, because any UK tax we might save would just mean there was less to offset when we come to pay Italian taxes. Does that make sense? I am almost certain that the Italian tax rates are higher than UK, and that offsetting works as I've said. What I don't know is how UK tax on rental income works, and what difference this Certificate would make.

[JonE]

The agent is asking whether we have a Residential Landlord Certificate. We don't, and my inderstanding is that if we did it would not make much difference to us [...] What I don't know is how UK tax on rental income works, and what difference this Certificate would make.

If you're not registered with the Non-Resident Landlord scheme the agent is required to deduct tax. It would be the tenant if you didn't have an agent.

I really wouldn't want to have a tenant responsible for collecting tax from me and sending it to HMRC. Same for agents as they can also do a moonlight.

It's very simple and straightforward if you have a history of submitting self-assessment returns and I doubt that it's much trickier if you don't.

Check guidance here:
https://www.gov.uk/government/collectio ... -bulletins

Cheers!

[youfoolishboy]

If you are living in Italy all your worldwide income is taxable under Italian law not UK law so you cannot pay any UK taxes unless you have put your house into a ltd company. You also need to pay Italian property tax on your UK property.

[Lootman]

If you are living in Italy all your worldwide income is taxable under Italian law not UK law so you cannot pay any UK taxes unless you have put your house into a ltd company. You also need to pay Italian property tax on your UK property.

If that is true, it's insane. Does EU law not prevent such egregious extra-territorial excess?

[JonE]

If you are living in Italy all your worldwide income is taxable under Italian law not UK law so you cannot pay any UK taxes unless you have put your house into a ltd company. You also need to pay Italian property tax on your UK property.

Being tax resident in Italy means that one is taxed in Italy on worldwide income but having income arising in the UK means that the UK also assesses one on the UK income. Being taxed twice on the same income is avoided by a double-taxation agreement and the net effect is that one pays the higher tax: if Italy's tax on it is greater than the UK's then one pays the difference to Italy but if the UK's tax on it is greater than Italy's then you don't get a refund. Of course, the UK net income may not be sufficiently great as to give rise to any UK tax being payable on it after allowances, etc. so one just pays the Italian tax with zero offset

The EU country where I'm resident assesses annual property tax only on local holdings but a quick&dirty search suggests Italian tax on UK property is not payable unless it exceeds €200 which I guess might mean a UK valuation of somewhere over £250k. I assume that Italian taxation is on individuals and OP implies that the flat has joint ownership so if son is not involved but just OP and spouse then the flat would need to be over €500k before IVIE is payable on each owner's share.

The above assumes that the tax is calculated on current open market value but it could be that it's on original purchase price or on an equivalent to a cadastral value (which, I guess, might be something like the mid-point of the relevant UK Council Tax band). It appears that UK Council Tax may (just may - but it seems a real stretch as it's not a central government tax) be offset in the computation but if the property is let then the landlord should only be paying that during voids anyway.

This all needs checking properly and may require paid input to get the situation precisely right for all of OP's specific circumstances: international and double-taxation stuff can get pretty messy at times.

Cheers!

[youfoolishboy]

Regards the property tax I have consulted my English/Italian accountant on that a few weeks ago, I also live in Italy currently, and it is taken on the old council tax bands even though they are out of date. Therefore the value of the property is the council tax band and the percentage you pay is based on that.

[Rob625]

My thanks to all for the helpful replies.

And to those who have set up TLF. If it turns out anything like as useful as TMF has been to me over the years, ...
... well, I would be happy to make a small donation. I'm sorry I don't have time find out how to search, but going off-topic, has anyone proposed crowdfunding for TLF?

[Lootman]

Italian tax on UK property is not payable unless it exceeds €200 which I guess might mean a UK valuation of somewhere over £250k. I assume that Italian taxation is on individuals

If Italy really taxes an Italian resident on the value of property that he owns outside Italy, then I would argue that really isn't a property tax at all. Property taxes are taxes levied by a jurisdiction on property owned in that jurisdiction.

What you are describing sounds instead like a form of "wealth tax" where an individual is taxed on the basis of his global net worth. I believe a number of EU nations have some form of wealth tax, although it is generally considered to be undesirable in Anglo-Saxon nations.

The difference is that Italy taxes the gross value of your property and not the net value, i.e. the equity after the mortgage is subtracted out.

Quite how Italy knows that you own a property overseas unless you volunteer that information is a mystery to me, however.

[youfoolishboy]

If Italy really taxes an Italian resident on the value of property that he owns outside Italy, then I would argue that really isn't a property tax at all. Property taxes are taxes levied by a jurisdiction on property owned in that jurisdiction.

Splitting hairs on what it is called is pointless if you have property overseas, and in Italy, you pay a tax on it. To me that's a property tax.

[Lootman]

Splitting hairs on what it is called is pointless if you have property overseas, and in Italy, you pay a tax on it. To me that's a property tax.

There are some practical differences - it's not just semantics. For instance if you don't pay UK council tax or US property tax, the local authority can place a lien or charge against your property, or perhaps even force a sale, to satisfy the unpaid tax. Italy cannot do that if you choose to not pay their "property" tax.

Again, you cannot conceal your ownership of a UK property from a UK local authority, but you could certainly conceal it from an Italian authority, and I suspect that many do given how egregious and extra-territorial this tax is.

Finally, the general idea of a property tax is that local residents pay it to fund local services. What you're describing is really a wealth tax on certain types of foreign asset, which contributes nothing to the community where the property is located.

[youfoolishboy]

Splitting hairs on what it is called is pointless if you have property overseas, and in Italy, you pay a tax on it. To me that's a property tax.

Again, you cannot conceal your ownership of a UK property from a UK local authority, but you could certainly conceal it from an Italian authority, and I suspect that many do given how egregious and extra-territorial this tax is.

Finally, the general idea of a property tax is that local residents pay it to fund local services. What you're describing is really a wealth tax on certain types of foreign asset, which contributes nothing to the community where the property is located.

The Italian tax authorities ask the UK tax authorities for what you have told them. I suspect concealing is not as simple as you think.

The Italians tax all proprieties even if you stay in them therefore it is not a wealth tax but a property tax. No property no tax
Please advise on your experience in Italian tax as I would be grateful for some first hand advice as all mine is from a KMPG Italian tax accountant.

[Lootman]

Please advise on your experience in Italian tax as I would be grateful for some first hand advice as all mine is from a KMPG Italian tax accountant.

My experience tells me that I would never be foolish enough to live in a place with such a bizarre taxation system. Although it does help explain why the Italians get the silver medal for the Olympic sport of tax evasion, right after the gold medal for the Greeks of course.

[youfoolishboy]

Please advise on your experience in Italian tax as I would be grateful for some first hand advice as all mine is from a KMPG Italian tax accountant.

My experience tells me that I would never be foolish enough to live in a place with such a bizarre taxation system. Although it does help explain why the Italians get the silver medal for the Olympic sport of tax evasion, right after the gold medal for the Greeks of course.

Next year should be tax free in Kuwait so swings and roundabouts. Last year was Germany but commuting from UK. Every year is a surprise when oil prices are low.

[stevensfo]

The Italians tax all proprieties even if you stay in them therefore it is not a wealth tax but a property tax. No property no tax
Please advise on your experience in Italian tax as I would be grateful for some first hand advice as all mine is from a KMPG Italian tax accountant.

I've been working in North Italy for 15 years and in all that time, the UK colleagues with property in the UK have never had a problem. They actually declare all income to HMRC, but don't dare do this in Italy. It's not so much unwillingness to pay tax, rather than the dread of italian bureaucracy that we all share here. The lack of communication, email addresses that come and go, the lost letters, the contradicting advice, the appointments that are made on days when the offices are shut, the disinformation and just lack of any real sensible information or guidelines whatsoever.

Our italian colleagues can't believe that we can do our tax returns on line. They usually spend a fortune on an agency and even then, they still worry that someone's cocked up!

Steve

[Lootman]

I've been working in North Italy for 15 years and in all that time, the UK colleagues with property in the UK have never had a problem. They actually declare all income to HMRC, but don't dare do this in Italy. It's not so much unwillingness to pay tax, rather than the dread of italian bureaucracy that we all share here. The lack of communication, email addresses that come and go, the lost letters, the contradicting advice, the appointments that are made on days when the offices are shut, the disinformation and just lack of any real sensible information or guidelines whatsoever.

Our italian colleagues can't believe that we can do our tax returns on line. They usually spend a fortune on an agency and even then, they still worry that someone's cocked up!

If I settled in another country, their tax system won't be the only consideration, and maybe not even their tax rates although generally lower is better. But rather how reasonable their rules are and how efficient their tax system is. That would rule out places like Italy and Greece from the outset, although I enjoy visiting both countries.

The good news is that many of the countries with acceptable tax systems are also desirable e.g. Canada, Austria, Australia and Sweden. All of those also have no inheritance or estate tax, which is becoming a factor on my mind a lot. I dare not even think how probate works in Italy.

[JonE]

The good news is that many of the countries with acceptable tax systems are also desirable e.g. Canada, Austria, Australia and Sweden. All of those also have no inheritance or estate tax, which is becoming a factor on my mind a lot.

Merely being resident outwith the UK doesn't necessarily get all your estate outside the UK's IHT net. The details of the topic of 'domicile' become relevant and HMRC don't seem to be keen on giving up easily on this matter.

You could divest yourself of UK assets above the IHT threshold, buy/license a burial plot in your country of choice and then work through the other badges of having an established 'domicile of choice' so that your executors have something to work with.

Cheers!

[Lootman]

Merely being resident outwith the UK doesn't necessarily get all your estate outside the UK's IHT net. The details of the topic of 'domicile' become relevant and HMRC don't seem to be keen on giving up easily on this matter.

Yeah. It's been my understanding that if one fully and genuinely establishes a life overseas (lives there, buys a house there, sells all UK assets and generally severs all one's connections with the UK) then a claim of switched domicile should be accepted. It does need to be claimed, however, rather than just assumed.

Of course, if one's life, assets and affairs are all elsewhere, one's will is there, one's death is registered there, and probate happens there, then it's very likely that by the time a UK authority hears of your demise, if ever, your estate is well and truly thrown to the four corners of world. Unless you are worth a great deal, I somehow doubt that HMRC would argue the point given the practical difficulties of projecting extra-territorial legal over-reach.

[JonE]

Of course, if one's life, assets and affairs are all elsewhere, one's will is there, one's death is registered there, and probate happens there, then it's very likely that by the time a UK authority hears of your demise, if ever, your estate is well and truly thrown to the four corners of world.

If in receipt of UK State Pension then the Pension Service will need to be informed of demise and one's executors may be inclined to do that fairly promptly in the interests of self-preservation. Failure to return a Life Certificate (and/or a Certificate of Existence for any other UK pension) can be expected to attract attention and I imagine there are other gotchas.

Perhaps 'Taxes' would be a better forum to explore this matter (if desired) so I'll say no more here.

Cheers!