Renting Out Your UK Home – A Guide for Expats
Being an expat landlord can create some great cash flow or a pain in neck, so it is imperative that you approach it the right way. You have two options you can either do it yourself or hire an agent but making the right decision can be difficult. This guide will help you weigh up the options and see which one will work best for you.
There are many advantages for expats who choose not to sell their home in the UK when they move abroad but rent out instead. For instance, it is a great source of income, it make sure they have a home to come back to if they wish return to the UK and it will make it easier for them to acquire additional mortgages in the future.
Perhaps, you feeling straight away that finding your own tenants, managing the maintenance and rent collection would be the better option because it would be a great way to save some money, as you won’t have to pay agency fees.
The disadvantage is that handling the tenants and maintenance issues yourself can mean that you will have to deal with all the problems yourself, which can be stressful and result in the taking up a lot of your time. Also you need you take the time difference into consideration, this could cause communications problems when you are trying to sort out an issue.
Adding to all of this when tenants move out, inventories must be completed, repairs carried out and the return of the deposit negotiated.
Alastair Mullen, the UK lettings manager for Hamptons International, pointed out: “Having to manage contractors from a distance is tricky, and your visits to the property itself to check on the tenants and the property will be limited.”
Mullen, who is an expat landlord himself, living in Hong Kong, added: “In most cases DIY landlords will have to use an agent or a website to find a tenant, which will still cost them. The only reason I am able to work on this basis is having good friends and family living near my property who help out with checking the property and organising maintenance.”
Costs to factor in
If you are think that finding a good agency will be better for you, be prepared pay about 12 percent to 15 percent combined letting and management fees.
You must inform your current insurers that your plans are to rent out your home, and there may be an additional charge for a landlord insurance policy. This is vital in order for you to be able to protect yourself against accidental damage, tenants defaulting on their payments and legal costs associated with contract disputes or repossessing the property.
How to choose an agent
Before hiring a lettings agent, make sure that they are prepared to deliver and collect keys on your behalf and complete an inspection of the property before tenants leave to make sure it is still in good condition.
Enquire if the agent can organise furniture and installation, if it is ever necessary, as it is ill-advised to leave your own possession in your home when renting it out.
It is compulsory to notify your mortgage lender of your plan to rent out your home and gain their permission, or else you could break the terms and conditions of your loan.
A common practice for expats is to use their salaries when they move overseas to purchase more property in the UK, it is generally a sound investment or they could use it as a possible home should they ever decide to return to the UK.
Keeping your home in the UK makes it easier to secure a buy-to-let mortgage once you move abroad. It can also make it easier to obtain a mortgage when you return home.
Nigel Bedford, senior partner at largemortgageloans.com, said: “Some lenders want new borrowers to have a UK mortgage track record so that they can see a satisfactory payment history, while others base their lending on overall affordability and any mortgage anywhere in the world. Mortgage brokers advise someone who has the option of paying off a UK mortgage to pay it down to a very small amount and continue to make tiny monthly payments, however small.”
Bedford added: “This will maintain the payment history while having little effect on overall affordability. If push comes to shove, such a small mortgage could always be totally repaid if it was necessary to meet the requirements of a lender and possibly secure the best rates.”
While the rental income is likely to be paid in sterling to a UK account, expat landlords may need to transfer the money into their local currency each month. Many choose currency specialists who can provide contracts that protect them from instable fluctuations in currencies from month to month.
James Bennett, managing director of expat financial adviser Aston Wealth Management, said: “When you consider that in the last 10 years the rate between the US dollar and the pound alone has had a 55 per cent variance, it can become near impossible to calculate and budget for such huge adjustments and adapt these into a lifestyle.”
He added: “Sometimes you will be on the winning side of this equation but at others, you can be left holding what is effectively an income that is losing value month on month.”
Having a bank account in the UK will also help avoid international transfer fees.
While tax depends on your individual circumstances, there are common considerations affecting all UK property landlords. Income tax will be charged on any rental income above the personal allowance. The personal allowance amounts to £10,000 since April 5 2014, but this tax break for non-residents is under review by the Government.
Mhairi Trayes, a Singapore-based tax adviser at the Fry Group, said: “Individuals can choose to complete the non-resident landlord form to receive their rental income gross. This means that the letting agent does not need to withhold basic rate tax from the rental income before distributing it to the overseas landlord. The gross income is declared on the self-assessment tax return.”
At present a non-resident Briton is excused from capital gains tax, based on them achieving five consecutive UK tax years of non-resident status. However, new rules said to be put into place from 5 April 2015, which is going to attempt to tax all future gains made by non-residents on the sale of residential real estate in the UK.