Tax obligations for overseas investors

Question from stuart updated on 22nd January 2008:

In 1994 I emigrated to NZ from the UK. I purchased a NZ property in 1996 in which I lived in until 1999. From 1994 to 1999 I was a tax resident of NZ. I moved to Australia becoming a tax resident from 1999 to 2001. I returned to the UK in 2001 and currently a UK tax resident. Since 1999 I have rented my NZ property out and file non-resident tax returns. If I hang on to the property and repay my mortgage next year, I could be looking at maybe $9000NZ in net rental income. My property has doubled in value since 1996 and is now worth approx $350K to $400KNZ. Problem: I own a house in the UK which I bought in 1992. This was my home until I emigrated to NZ in 1994. I rented it out from 1994 to 2001. I filed non-resident income tax returns with the UK IRD. Since 2001 I live in this property again. What are the tax implications with selling my NZ property? Many thanks, Stuart

Our expert responded:

There are quite a few issues here to be considered, and I would suggest that you take some specialist tax advice for your situation. However, I will briefly cover some of the major issues. Firstly, if you were an NZ tax resident between 1994 to 1999, which is when you were renting out your UK property, then you have an obligation to include in your NZ tax return all of your worldwide income, which will include any income earned from renting out your property in the UK. Secondly, if you have claimed any depreciation since 1999, then there will be depreciation recovered on selling the property and income tax payable on this. Thirdly, if the house was originally purchased as your home and not an investment property, so that that was the purpose for why you took out the mortgage, then it is doubtful that any interest expense is tax deductible without a change in ownership for the change of use. And last but not least, as you are now back to being a UK tax resident, you are subject to UK tax law. In NZ we do not have a capital gains tax, so if you sell the property here in NZ, you will not have to pay any capital gains tax in NZ. However, if you as a UK tax resident and are subject to capital gains tax, then you will have to pay tax in the UK on your NZ asset.

Kenina Court is a director of Acorn Solutions Limited, an accounting firm dedicated to working with clients to help them create wealth. She is an avid property investor, entrepreneur and seminar presenter on asset protection and wealth strategies.



 



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