Renting out UK property as non-resident

I am dual UKC/ USC and live in the USA and inherited half of my Father’s UK house along with my UK resident sister and have not been UK resident since then.
My sister has been AirBnb-ing the property for last three years but I have not received my share from her yet -looks to be about £3000 per year

US tax is cash based so I don’t report or pay anything until I receive the income which I plan to get in Jan
Does HMRC work the same way or should I have filed Self-assessments for last three years listing the income (that I have yet to receive) anyway? 

Further, when I do get the money and file a self-assessment as non-resident, will I be assessed tax or does it fall within a personal allowance?

e.g. as US resident and NOT UK resident with $50k in US income and only £9k in UK rental income I assume I declare  only the £9k  on my UK return. Is this taxed or covered by the £12k ‘personal allowance’?

It has been an awful long time since I was a US resident receiving UK rental income but I believe it was fully taxed by the IRS and not taxed at all by HMRC.

It was the same with my UK salary and later my UK pension, all taxed by the IRS and not HMRC while I was resident in the USA.

It has been an awful long time since I was a US resident receiving UK rental income but I believe it was fully taxed by the IRS and not taxed at all by HMRC.

It was the same with my UK salary and later my UK pension, all taxed by the IRS and not HMRC while I was resident in the USA.

Don't think that is true today.

This is from the AirBnb tax guide:

UK income tax obligation for non-resident individuals
If you are a non-UK resident and in receipt of UK rental income, this income falls within the
scope of UK income tax and must be reported to the HMRC.

In circumstances such as yours you're always best to get professional advice  (probably paid for) rather than from rental websites or even the comments of posters on this forum (acknowledging however that some of the posters  are tax professionals and many other comments offer excellent and well informed advice).

From a UK perspective your income is taxable - as per:

https://www.gov.uk/tax-uk-income-live-abroad/rent

I am not fully familiar with your US tax situation (remittance vs accrued) but would assume based on the US tax system that your global income (including UK rental income) is fully taxable in the US. You should be able to take a foreign tax credit in the UK for the tax you have paid in the US  on the UK income, although this may not be sufficient to completely eliminate your UK tax liability.

Be mindful also of a potential UK Capital Gains Tax liability in the future if or when the property is disposed of - the US and UK tax treatments and thresholds can be markedly different.

The official IRS instructions for Form 8938 say that your father's estate is a "specified foreign financial asset".  The estate was therefore required to be reported by you on Form 8938. A distribution from the estate (including your half share of the property) is reported on Form 3520.

The UK rental activity is reported on Schedule C or E (depending on what is meant by Airbnb), Form 8858 and Form 1116. If any of the US tax forms mentioned here were overlooked, you'd probably want to use the official IRS SDOP to catch up.

In the UK you'd already have registered for the non-residents landlord scheme and be filing UK returns to report your share of the Airbnb income and expenses.

The UK rental activity is reported on Schedule C or E (depending on what is meant by Airbnb), Form 8858 and Form 1116. If any of the US tax forms mentioned here were overlooked, you'd probably want to use the official IRS SDOP to catch up.

In the UK you'd already have registered for the non-residents landlord scheme and be filing UK returns to report your share of the Airbnb income and expenses.

My UKC sister has handled the rental so I have not registered for anything. Further I have not received any income ( yet) so have not declared any on UK or UK taxes.
Assuming I do get my half of the income from my sister in early Jan I will then file self-assessment for 2021-22 including the income and presumably pay some tax  - but maybe not since the net after allowable expenses will be under 10k

I will include the income on my 2023 US taxes too but that raises another question:
If I pay UK tax for 2021-2022 as UK non-resident and US treaty resident - how do I resolve double taxation?

• Is the US supposed to get the tax because I am US treaty resident? If so do I pay the US tax in 2024( for Jan 2023) and then claim it back from UK in 2024?
  Or do I file US taxes for 2023 asking for credit of tax already paid to UK?

This is FAR from my area of expertise, so could be completely and wholly incorrect.

But this is what I would anticipate....

UK taxes are typically higher than US taxes.  When any single year is looked at, I would expect that you will have paid tax to the USA for the rental income.  And then additional tax to the UK on the balance.  I do not believe the personal allowance exemption of £12k ish is available for property income.  This is one of the many many barriers HMRC have put in place to make being a landlord undesirable.

For fun, let's say you have $10,000 income per year (I like round numbers).

File US tax and if the tax rate on rental income is 15%, you'll pay the IRS $1,500 in tax.
File UK tax and if the tax rate on rental income is 20% (and I suspect there is a treaty preventing double taxation on rental income).  So the full UK tax would be $2,000.  As you've paid the IRS $1,500, you'd only by HMRC $500, the balance to the UK tax amount.

If you were to pay HMRC first, you'd pay $2,000.  Then you would input the foreign tax of $2,000 pain on your IRS return and would not owe the IRS on that as you've paid tax under a treaty between the USA and UK.  And because the UK tax is higher.  That will always be the downfall.  The country with the higher tax rate will take that "extra bit".  It's not double taxed but it is taxed in full, if that makes sense.  You'll lose the benefit of "just" paying the lower tax rate.

There will be a lot of moving parts to this and I'd recommend reaching out to Monument Tax who are a reputable, affordable US/UK tax firm. 



Moving on from that, I can't help but think there is likely tension and possibly a disagreement with your sister about the home.  Needless to say if she's been running it as an AirBnB for 3 years and you would like to sell (guessing?), I'm sure that has strained the relationship.  And it would be a shame as the housing market is just settling a bit after going CRAZY for a good 6 months.

I hope you are able to make headway in a resolution when you see her next.  I'd recommend having a few valuations completed on the property and asking her to just buy you out).  If she doesn't have cash, she could take a mortgage out for half the value that she needs to pay you.  She will need to get over this. 

Has probate finished and has the estate been settled?

Probate will (or should have) valued the property. This will be the base value for any subsequent CGT.

Don't underestimate the CGT implications or 'kick the can down the road' - you should fully understand the US & UK tax implications of any planned sale now or in the future - it may then feature into your longer term tax planning.

This isn't tax advice but, if you're going to continue to rent out a property on AirBnb, please read about the devastating impact holiday lets are having around the UK and consider how that sits morally with you.

Something to consider when you file in the USA - you will be able to claim tax deductions if you spent any money on work for Airbnb; I used to rent out a room in my flat. Agree with the other tax points made above that you will need to declare in the UK - but a specialist will be best placed to tell you what to do