So, here's the situation: you have a rental property here in NZ, and it is making a loss i.e. it is negatively-geared. You're living and working in the UK. The question is: can you offset these losses against your income earned in the UK? (Or put more formally: "Does HM Revenue & Customs (HMR&C) allow losses from rental property in New Zealand to be offset against personal waged income earned in the UK?"
Sadly, the answer is "No." We wrote to HMR&C recently and here's what they said: "In the UK the income from property is classed as a businesses and cannot be relieved against general income except in the case of exceptional expenses associated with capital allowances." The HMR&C Property Rental Toolkit also says "Any rental business loss is automatically carried forward and set off against rental business profits of the following year. Rental business losses cannot be set against general income except in limited circumstances. From April 2011 furnished holiday letting losses can only be carried forward and set off against furnished holiday lettings profits of the same business."
So, what now then?
So, what happens to them? In the situation mentioned above, you have to file annual tax returns in NZ. Assuming you've made no taxable income in NZ, the losses then just get carried forward until such time as you've got something to claim them against here in NZ. Or in Australia. Do you have to show these losses on your UK tax return? Probably, but that's a question for your accountant in the UK.
Does it make a difference if you're tax-resident or not? No. You still will have a tax return filing obligation here in NZ, and the losses can't be offset against your UK income. They can only be carried forward.
Read HMR&C's Property Rental Toolkit here (PDF). See also this page at the IRD website which covers what to do if you have rental property in a country other than New Zealand, and this page which details the Double Taxation Agreements between NZ and the UK.
Confused? Call us on 0800 890 132 or contact us.
If you're working in Oz, it's a bit different. See this article for more info.
See this article.
See this blog.
Please see this link.
Image courtesy of basketman at FreeDigitalPhotos.net
Accounting for your rental residential investment property; general taxation advice.