If you’re fortunate enough to be heading overseas without needing to sell your British home, then you may find yourself looking to turn it into a rental. However, becoming a landlord and renting out your UK home when you move abroad is a little more complicated than doing so when you’re still in the country. Here’s our round-up of your need-to-knows.
Do you need to change your mortgage or get permission to rent?
If your property is under a mortgage, you’ll need to examine the terms and conditions to find out whether you’re allowed to rent out the property without any extra paperwork. As residential mortgage rates are normally lower than buy-to-let mortgages and the risk is higher to the lender, you normally need to get permission.
This comes in two forms. If you’re moving abroad temporarily – say, a period of one to two years – you will generally be able to request “consent to let” from your bank by writing to them with full details of your move.
If you’re moving permanently, you will need to move over to a buy-to-let mortgage. As above, the interest rates will be slightly higher, but you will be able to rent for the duration of the loan. If you ever need to move back in temporarily, you may be able to obtain “consent to reside” from your provider.
In England and Wales, you may sometimes also need to get permission from your freeholder if you are in a leasehold property, as it may be considered subletting. Check the clauses within your lease document that your solicitor will have provided during searches.
Should you use an estate agent or go down the private route?
Your next decision to make is how you’ll manage renting out your UK home when you move abroad. You have the choice between using an estate agent or running it as a private landlord.
The former is perhaps the most popular for overseas homeowners. The agent will handle all aspects of the rental, from finding you a tenant and carrying out background checks to collecting the rent and engaging tradespeople to deal with any repairs and maintenance. If the tenant ends the contract while you’re abroad, the agent will be able to find you a new one without complications.
As a private landlord, you have more flexibility and can save yourself the agency fee, but you do need to be able to manage things from another country. You’ll need to find your tenants yourself and manage the maintenance and rent collection. Note that, as we’ll discuss in a moment, your gross rental income may not be able to be paid directly into a foreign bank account – this can be a big sticking point for some.
Usually this second option is more doable if you have a family member or close contact living nearby who is willing to help out at times, such as popping into the property to see any issues, and if you have contacts in the trades whom you trust.
There is an in-between option where an agency can advertise your property and find you a tenant for a fee, but then leave the management of it to you. These days, this service is becoming less attractive as there are relatively cheap services which will also post your advert to the big portals (namely Rightmove and Zoopla), putting your property in front of the same people as an agency will have on their list. The only advantage there would be if you didn’t have someone to do viewings yourself.
What are the tax implications of renting out your UK home while abroad?
Rental income is treated a bit differently to a lot of other income when you move to another country. Normally, if you spend 183 days in a country, you’ll be considered a tax resident there and won’t pay tax in the UK on, for example, your employment income.
For landlords, if you spend over 6 months (roughly 180 days) in another country, you’ll be considered an NRL or non-resident landlord – and you will still need to pay UK tax on rental income.
As it’s quite difficult for HMRC to chase foreign residents for income, the default rules for how you receive your income state that the tax must already have been deducted.
This means that either your landlord or your tenant withholds the basic rate tax from your rent and they will then have to make the payment each quarter. As you can imagine, it is much simpler to have an agent used to handling this to deal with record-keeping and form-filling than to impose it on a tenant.
You may be able to obtain permission from HMRC to keep the tax amounts in the rental payments and then pay through self-assessment. You’ll need to fill in form NRL1 to make an application.
This process is a bit complicated, but the good news is that if the country where you’ve moved has a double-taxation treaty with the UK, then you won’t need to pay tax again on that income in your new country. Countries that have signed treaties that explicitly include rental property income include the United States, France, Spain, Portugal and Italy. Note that capital gains may be subject to different rules depending on the treaty.
How can you transfer your money abroad safely?
Dual treaties aren’t the only way you can protect against unnecessary costs when you’re receiving UK rental payments abroad.
The currency markets mean your rental income will fluctuate in value every month. You have a number of options to protect against this, depending on how you’re using your rental income.
If you want to receive it regularly, you might choose to set up a forward contract, which would lock in an agreed amount at that day’s exchange rate for a set period, such as twelve months. You could, upon payment of an initial deposit (usually around 10%), then transfer the amount of each month’s rent periodically throughout the year without the risk of the live currency markets changing its value.
If you are receiving it in a UK bank account and don’t need immediate access, you might choose to set up a rate alert for when the markets hit the rate you want – so you can then act fast and make a spot transfer. Alternatively, a market order will automatically book a trade for you when your desired exchange rate is reached.
Ticking the boxes as a landlord overseas
No matter which option you choose for your payments, the most important thing is that your money will be protected against the volatility of exchange rates. With your property rental properly set up too, you’ll be ready to enjoy your new life overseas. For more insight, be sure to keep up to date with our blog.
Alexander is a writer specialising in foreign exchange and overseas property, with seven years’ experience helping people to purchase abroad and send money safely, including hosting seminars on the topics around the UK. You can find him out hiking, travelling and working from Spain in the sunnier months.