Advice about what to do with overseas property

[beginner]

I have a property in the UK (6 years old, city centre 2 bdrm apartment, 120 year leasehold, excellent location so no vacancy ever likely, current value NZ$620k) in which i have NZ$260k equity.

It was CF positive (after maintenance and PM fees but before income tax) to the tune of NZ$5.8k per year. My UK fixed rate mortgage period recently ended so I am now on a higher variable rate making it CF positive by NZ$1.7K /year. If I refix my mortgage it will probably be even more CF positive than before as the LTV will be less (although I don't know which way UK interest rates are predicted to move).

Because I have not lived in the property for the past 3 years, I believe I am liable for UK capital gains tax on any capital gains after the 3 year period.

To avoid having to lock myself into another 2-3 year fixed rate mortgage, avoid CGT on subsequent gains, and to free my equity for use in NZ, I decided to sell it and am near completing.

However the sale is being held up by the lawyers wrangling over a few unresolved issues related to the local council and also the fact that the property deeds are lost (my lawyer says the sale can still proceed without the deeds). It is unclear how long it will take to resolve these issues.

My questions are

1. should i cancel the sale (my lawyer says I have this option) and refix my mortgage to get the cashflow/capital gain or am I better off just selling it and invest in NZ property?

2. if i keep the property, is there any way a NZ bank would lend me money on the equity I have in it in order to buy NZ property? (baring in mind the property deeds have been lost)?

3. if i keep the property, how much tax would i have to pay on the rental income (I pay higher rate tax in NZ, and have no other UK income) - I'm guessing I pay basic rate UK tax + higher rate NZ tax on the excess ?

4. if i keep the property and sell it in the future - how much UK capital gains tax do i pay and how is it calculated from the time i am liable for it?

5. is it easy to refix my UK mortgage now that i am in NZ or will the UK bank want all my financial records from NZ (I have only been back in NZ for 11 months) to refinance (which sounds like a lot of hassle

6. if i keep the property, will a UK bank let me refinance to invest in UK or NZ property? if i can invest in UK property is it easy to do whilst based in NZ?

thanks

[spaceman]

imho

1. Keep it .... think of the tax deductible trips back to the UK you could make ..... generally I'm a bit of a buy and hold forever kind of guy.

2. Yes I think so.

3. There is a DTA between NZ and UK ...which means the respective tax-men agree to only tax things once, provided proof of tax payment in one place is provided. I'm not sure but I think you can pay tax in the best place for you (less tax) and the other government just accepts this. ie: UK 10% tax NZ 20% ... you elect to pay the tax in UK and everbody is happy.

4. Ummmm dunno ...see 1 above about never selling

5. Easy I think ...banks want business..I live in Italy and watch pommy sky tv and all sorts of adverts promise easy money for property both in the UK and abroad.

6. I think so ... again see 5.

Good Luck

Cheers
Spaceman

[beginner]

i like the idea of tax deductible trips to the uk - fantastic

i'm coming round to thinking that I should keep the property
- spoke to 2 mortgage brokers today who told me there no way any NZ bank would let me use the UK house for financing because the costs/hassle involved for them in dealing with overseas lawyers/banks is not worth it for them
- he suggested I try and approach a UK bank to release the equity to fund NZ property

[lissie]

Are you likely to go back to the UK at any stage - for work or play? By keeping the property you are keeping some of your assets in pounds - which is good if its likely that you will need to spend pounds again.

[Traff]

Keep it

We sold 3 properties when we left the Uk and have regretted that decision everyday since , dont sell unless you have to.The pound is a great currency and always good to have in your pocket.

Cheers

Mark

[donna]

I agree with a lot of the posts here - don't sell unless you absolutely have to. I sold my London property and have regretted it forever afterwards.

It's hard to get into the UK market so if you are in - you're lucky!

Cheers,

Donna

[pgflt]

Why would you repatriate your funds when the exchange rate is so unfavourable? At least wait until the NZ dollar weakens. Then remortgage and use the equity released to buy NZ dollars at a favourable rate to achieve your New Zealand goals.

[beginner]

it seems the advice is unanimous!

I have now formally withdrawn from the sale as it dawned on me that the capital gains tax issue is not an issue if i never sell the property.

Hoepfully I can refinance via a UK lender. Although I still don't understand what a 120 year leasehold really means yet (will the property depreciate as it nears the end of the leasehold period?)

I feel like I should refix for 2 or 3 years ASAP to reduce the payments my monthly interest payments went from $1500/month to $2300/month overnight when my discount period ended.

Am I best off refixing straight away rather than trying to wait an indeterminate period for the dollar to weaken?

I have a $360k mortgage on the property - should I try to increase that mortgage to a level which makes the property CF neutral or am i better to increase it to make the property CF negative and claim back NZ tax (is that possible?) - then use the cash I get to buy NZ$ and NZ property or should I just leave the mortgage at it is and refix for increased cashflow?
I am confused by all the options

[beginner]

just spoke to my UK lender and another UK lender - both categorically refuse to lend to someone who is not a UK permanent resident and not receiving an income in sterling so it looks like I may have to sell after all

- update: just spoke to www.moneyextra.co.uk who brokered my last 2 mortgages (I highly recommend them) who said there will be no problem refinancing upto 85% LTV but the rates are higher for buy to let mortgages and increase with the LTV. They reckon I should easily be able to get a rate below 5.9% fixed for 2-5yrs.

- i guess I should go for the shortest fixed rate in order to refinance again sooner as I expect nice capital gains on the property?

- I am a bit concerned that the broker told me (statutary declaration) that the UK buy to let mortgage industry is unregulated (unlike the residential mortgage industry) and so the brokers do not give advice and only present you options, . Anyone know what that means?

- now I just have to work out how much currency risk I would be exposed to - my simple way of thinking is that the proportional favourable difference in interest rates (i.e 6% v 8% = 25% difference) outweighs the much smaller proportional potential change in exchange rate (a 25% devaluation of the dollar against the pound is less likely I presume)? - any ideas?

[Josko]

You are getting into the "risk" area of investing beginner, this is one of the most personal attributes when considering what to do with investments. How much risk you are willing to take on depends on how informed you believe you are and can maintain relative to the situation. Historically, at least in the last few years at least there has not been a great fluctuation between the NZ$ and the British Pound so it would take some extra ordinary event to experience a large devaluation of the dollar against the pound. However this is a persona risk issue and you have to tread carefully when considering the risk.

[lissie]

[QUOTE=beginner;62440]

- i guess I should go for the shortest fixed rate in order to refinance again sooner as I expect nice capital gains on the property?

QUOTE]

You may want to go for a short fixed rate if you think the rates are going to fall - but if you want to refinance to access CG you can always just get another mortgage against the same property (with the same lender mind) . I dont guess how fixed rates are going to work out I split my mortgage into equal chunks and then fix for a range of periods -reducing the interest rate risk

Can anyone explaina why the UK banks charge higher interest rates for buytolet ??? Surely a rental is a lower risk than owner-ocupied - in such a competitive market how do they get away with it?

[beginner]

[quote=lissie;62508]

QUOTE]

You may want to go for a short fixed rate if you think the rates are going to fall - but if you want to refinance to access CG you can always just get another mortgage against the same property (with the same lender mind) .

great idea! I hadn't considered accessing CG with a second mortgage instead. From what I gather, the majority of people think UK interest rates will rise.

I've been offered refinancing at 80% LTV on the UK property at 5.19% which i can fix for 2, 3, 5 or 10 years
- would it be a good idea to just fix it for 5 years and forget about it?

[beginner]

thanks for the advice everyone!
- I have kept the UK property and am really pleased with the decision
- before looking on this forum I was completely clueless about property and it had not occurred to me that I should keep the place, I was automatically going to sell it since I moved to NZ

but having now read about property a bit and looking at what is available in NZ I can see I have been lucky with the UK place which has been appreciating at 10-12% every year for the past 4 years (and is likely to remain high for the next few years due to new business school being built near the property), currently has a gross rental yield of 21% and has only had 3 days vacant in the last 3 years and current tenant (executive MBA student) on a 12 month contract


I am refinancing with a UK mortgage fixed at 5.09% for 2 years and will leave the required mortgage top-ups for the next 2year in my UK bank account at 3.7% (so I have zero currency exchange risk and so I have UK currency available for miscellaneous other things) and bringing the rest of the released equity as a deposit on a NZ property. I will use the UK property to tax deduct one trip per year back to the UK

[CJ]

3. There is a DTA between NZ and UK ...which means the respective tax-men agree to only tax things once, provided proof of tax payment in one place is provided. I'm not sure but I think you can pay tax in the best place for you (less tax) and the other government just accepts this. ie: UK 10% tax NZ 20% ... you elect to pay the tax in UK and everbody is happy.

You dont get to choose - the DTA has rules. As the property is in the UK, UK has primary taxing right.

4. CGT is the gain above cost. there is also indexation. I am sure there is more to it but should give you a rough idea.

[pete]

similar situation

I'm actually in a similar situation to beginner - Have a London apartment which I'm pondering over whether to sell or not when I return to NZ.

Problem I have with keeping it is, you have to keep a LOT of equity in the property for it to be at least cashflow neautral. (Mainly because on top of the mortgage there's an extremely extortionate monthly service charge!)

Without selling I could probably land in NZ with around £20K, with selling it would be more like £100K which would be useful for getting ahead in NZ - & as the money would be going into NZ property I could probably forgive myself for letting the UK place go....