Renting Out your House when you Emigrate to New Zealand

There is a lot of debate among emigrants over whether it is best to rent out your house in the UK when you emigrate to New Zealand and keep it as an escape route, or whether it is best to sell up and have no choice but to make the best of your new life.

In reality, there are a lot of practical reasons you might choose to keep your home in the UK when you emigrate – a flat real estate market in your area, or a buoyant rental market, or indeed a rapidly rising real estate market that makes your home an irresistible investment.

There are equally plenty of reasons to sell up – renting your house out is a bit of a hassle, and you may need the equity from your home to start your new life in New Zealand.

Whatever you decide, you’ll need to know about some paperwork, the practical considerations, and your tax position in both the UK and New Zealand.

1. Furnished or Un-Furnished?
2. Letting Agents 
   
3. Landlords Insurance
4. Your UK Mortgage
5. Your Tax Position in the UK
6. Your Tax Position in NZ
7. Covering your Costs
8. Conclusion

Furnished or Unfurnished?

It would be great if you could let out your property fully-furnished in the UK and go and buy a lovely new set of furniture in NZ with the proceeds, thus saving on shipping costs…but it doesn’t quite work like that. Furnished properties need to be furnished to a very high standard, and soft furnishings need to be certified as fire resistant - and you may not get much extra rent on a fully furnished property.

You do need to leave a few things behind for your tenants though – a cooker, fridge, washing machine and garden tools/lawn mower if they will be looking after a garden. This adds to the list of things you have to pay to repair and maintain, but they do happen to be things that you either:

1. don’t really need to bring with you (cookers are generally left behind in NZ homes) or
2. may have a few issues about bringing from a biosecurity standpoint (garden tools and lawn movers need special cleaning and will be inspected) or
3. may have a few issues about bringing from a practical standpoint (it may be harder to get an exotic washing machine repaired in NZ, and your fridge/freezer would need very careful defrosting and cleaning before pack it up, and tends to be one of those things that works without problems for years until you move it.)

Letting Agents

A letting agent will find tenants for you, arrange necessary maintenance, repairs and inspections, and generally look after your property. You’ll pay for the privilege of course – 10-15% plus VAT of the rent your tenant pay will go straight to the letting agent.

You do need to keep on top of things with your letting agent – Jeremy’s family let out their home in the UK for a couple of years and found that:

• Letting agents, like real estate agents, are optimists – do your own research on what properties like yours are renting for.
• You need to make sure inspections are carried out, such as the annual gas safety inspection and regular (6-monthly) visits to your property by the letting agent.
• You need to read the check-in and check-out reports and compare them – your letting agent will probably rely on you to highlight problems.
• It can seriously affect your ability to pay your mortgage if your tenants are not making rent payments on time, or if your property is vacant for a while. Keep a contingency fund in the UK of around 3 months rent to cover such eventualities if possible. Keep in touch with your mortgage company if you do start having difficulty making payments.
• A letting agent may not pursue unpaid rents with as much vigour as you would like them to – we had some tenants who never made their payments on time, but the letting agent wasn’t very pro-active in gathering the rent or letting us know what was happening. Sometimes it took them a couple of weeks to pay the rent to us even once it had been paid by the tenant. Ask your agent what they do when things go wrong.
• You will need to keep re-decorating your property to maintain a high standard of tenants – our home went from “fit for professionals” to “fit for students” in three years. There is a quite a stigma attached to properties that have been let out to students when you come to sell, which may affect the price you receive for your property.
• If you do think your house may be due for some redecorating, try to arrange for a friend or family member to look through the property with the letting agent – they may give you a clearer idea of what needs to be done.
• Your letting agent should let you know when there is a bit of wear and tear, but ours was pretty slack in this regard. They kept saying that there was a bit of damp in one of the rooms, but never responded to our repeated requests for more information – such as which room was affected.
• It is much better to keep a good tenant on a lower rent than it is to keep raising the rent – check-in and check-out inspections are costly, and you may have vacant periods between tenants. You’re also liable for council rates and utilities when the property is vacant.
• You may be charged a lot for repairs and maintenance, and you are trusting to the letting agent’s judgement on what is sensible – we were billed ₤79 to get a light bulb changed, and we were charged several hundred pounds to “fix” a washing machine (it needed replacing a couple of months later anyway).
• Read and understand the tenancy agreement you sign with the tenant – keep an eye especially on minimum notice periods. You can also specify a break clause, where you can ask to get the property back if you need it.

Despite the costs and hassle, most emigrants choose to use a letting agent rather than relying on relatives or friends to look after their property. There is quite a lot of paperwork involved, both for tax and ongoing things such as check-in/check-out inspections, and even to change utilities over between tenants. There are also health and safety regulations for things such as fire alarms, extractor fans, boiler inspections, electrical inspections of appliances, and even requirements for fire escapes in some properties, all of which needs to be documented and kept up to date. There is also a lot of responsibility involved in choosing tenants and collecting rents. You don’t want to feel obliged to fly back to the UK when anything goes wrong.

Our letting agent had a sales arm, which came in handy when we came to sell the property – they were able to arrange inspections of the property while it was still tenanted quite well. They even gave us a discount on the estate agent fees! And while the rental didn’t go entirely smoothly and we weren’t making much money on it, the property market in our area of the UK did go up quite substantially, which made it worthwhile from that perspective.

Check here for more information on your rights and responsibilities as a landlord.

Landlords Insurance

You will need to let your house and contents insurer know when you are letting out your house, and may need to arrange special landlords insurance. The premiums may be a bit more than you are paying now, but you may be able to reduce your contents cover if you are letting your property unfurnished.

Make sure you understand the conditions of your insurance, especially if your property is going to be empty for a couple of weeks – you may need to get your letting agent to visit the property at set intervals and document their visit.

Your UK Mortgage

You need to let your mortgage provider know if you are letting out your home. They may ask for a one-off extra payment or impose other conditions as they see fit.

Your Tax Position in the UK

Before you leave the UK, you’ll need to contact the HMRC to register as a Non-Resident Landlord, and to apply for approval to receive rent with no tax deducted. This allows you to get paid the rental from your property via your letting agent without paying tax on it if you qualify – and you can offset costs such as your mortgage interest payments, letting agents’ commission, repairs and maintenance against any tax liability, so it is not too hard to qualify.

Once the HMRC is satisfied that you won’t be liable to any tax on your rental income, or that any tax due is covered by your personal allowances, they may not send you a self-assessment tax return – you will probably only have to fill in UK tax returns in your first year in the NZ if your house is the only significant asset you are leaving behind.

You will not be liable to UK Capital Gains Tax when you sell your house as long as:

1. the house was purchased as your main home rather than as an investment
2. the house was your only home in the UK while you were living there (you can’t claim CGT relief on more than one residence.)

More information on CGT on residences is available on the HMRC website.

Martin Riley from Sterling Tax Services can give you specialist advice on UK Capital Gains Tax.

Your Tax Position in NZ

For your first 4 calendar years in New Zealand, you will probably qualify as a transitional tax resident. This will allow you to receive any profits from renting out your property free of New Zealand tax.

Once the 4 year period of transitional tax residence has expired, you may be liable for New Zealand tax on your rental income and NZ non-resident withholding tax on mortgage interest payments. There is some more information about non-resident withholding tax on overseas mortgage interest payments on the IRD website, or you can contact the relevant section of the IRD via email with specific queries.

We do know of people who ended up with significant tax bills as a result of this, so it really is a good idea to seek specialist tax advice if you are thinking of letting out your house in the UK, especially if you are outside the Transitional Residence period or do not qualify for Transitional Residence.

Once again, Martin Riley from Sterling Tax Services can give you specialist advice on NZ tax liability on property held in the UK.

Covering your Costs

If you are seriously considering renting out your house in the UK when you emigrate to New Zealand, one thing we would like to stress is that the rental income must cover your costs - mortgage, insurance, maintenance, rental agency fees, change-over costs, provision for vacant periods, tax and all. It is very expensive to finance your UK rental property from your New Zealand income.

In Conclusion

There are plenty of things to think about if you are considering renting out your house in the UK when you move to New Zealand. Please contact us to discuss your options.

Broadbase International will work with you every step of the way to help you make a confident start to your new life in New Zealand. Please contact us if you have any questions about the financial side of life in New Zealand, and don't forget to order your free copy of our comprehensive New Zealand Guide.