UK rental sale taxes

Our Experts Answer:

On the presumption that you are a tax resident of New Zealand, you are right to say that you are taxed on worldwide income. This means the answer lies in whether the gain you realised on selling the UK property is taxable in New Zealand according to New Zealand law.

Although we do not have all the necessary facts to give a definitive answer, it would be fair to say that it is unlikely. As you have owned the property for the past 10 years, it is unlikely that the provisions of the Income Tax Act that can apply to tax gains on sale of a property would be applicable here. Therefore transferring the funds to New Zealand is unlikely to give rise to any tax issues for you.

However, one potential issue is in relation to the repayment of any GBP denominated mortgage. A mortgage is known as a “financial arrangement” for tax purposes in New Zealand. Financial arrangements that are loans denominated in foreign currencies need to be translated into NZ dollars, with the gain or loss in NZ dollar terms being taxable.

Ordinarily, this gain or loss is returned annually, but if you qualify for the “cash basis” exemption you can defer accounting for the gain or loss until the loan is repaid. This is where selling the property and repaying the loan comes into play. This is a relatively complex issue and if you had a UK denominated loan we recommend you seek advice. We also presume that you have been returning the past UK rental profit or loss in your New Zealand tax returns.