Tax implications of Scotland Rentals

[SmithOp]

I know nothing of UK tax law, but I'm curious if you had to provide any identity information to UK when you purchased?

In the US property transactions require a W-9 IRS identity request form to tie the transaction to your tax account.

It would seem to me these rental transactions would be hard for the taxing authority to tie back to you in order to request a tax return filing.

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[magmue]

Found this gov.uk page with a review of paying taxes on a rental property.

It confirms a "property allowance" of 1,000 pounds income per year, but talks about costs you can claim to reduce tax, with "different tax rules" for holiday lettings and a link to a worksheet.

 

[Nowaker]

I know nothing of UK tax law, but I'm curious if you had to provide any identity information to UK when you purchased?

Identity as in - fill in a purchase agreement? Yes.
Identity as in - show a government ID? No.

Note however, Scotland HGVC is not real estate. It's just a service contract, and taxed the same as hotel lodging.

In the US property transactions require a W-9 IRS identity request form to tie the transaction to your tax account.

1. W-9 is only for folks taxed as residents (that is, US citizens and US persons). See Part 2 of the form - you certify you are one. An overseas buyer would not sign a W-9 (unless they wanted to commit a crime of perjury)

2. I am not aware of W-9 being required for purchasing real estate. What's often misunderstood as "requirements to purchase real estate" is actually "requirements to obtain mortgage" - some of which are arbitrary (the bank decides they want it), and some of which are by law.

 

[Nowaker]

It's unfortunate if that is all you got out of it. If you were just looking for a single sentence reply, then a better summary of my reply to your comment might have been something like, "You have made a number of opinionated statements and they may not be entirely accurate." But of course, you know better. In any case, my comments were primarily for the benefit of the OP. You can choose to ignore them, if you don't think they apply to you.

What I said is not accurate - but is practical. What you said is accurate - and impractical.

Professionals - like you (CPA) and me (SWE) - are susceptible of going too professional when circumstances don't require it.

As much as it's valuable to share the law and its implications (you), it's also valuable to have risk assessment in mind (me).

De minimis - Wikipedia

en.wikipedia.org

> In risk assessment, it refers to the highest level of risk that is still too small to be concerned with. Therefore, only risk levels above this de minimis level must be addressed and managed. Some refer to this as a "virtually safe" level.[15] It has application in the fields of auditing, modeling, and engineering, and may refer to situations of low (negligible) risk.

A small mom & pop shop doesn't need FAANG-class engineers to have their website built and maintained (even though I could go for long about all the risks that are involved getting this for cheap) and an owner of a single timeshare unit doesn't need to be concerned with UK income & transaction taxes when deciding to rent it out for cash (even though you could go for long about all the risks that are involved in it) simply because the risk is so low and the cost of doing it proper so high that it is impractical.

 

[klpca]

Also a CPA here. I believe that @CanuckTravlr is just trying to present the facts to allow the OP to make their own decision. Part of it is that our profession requires it, and I suspect that it is also because some of us have spent a career cleaning up other's messes. Some people ask first then go ahead and do it their own way anyway, others don't want to know. Either way, it's a lot more expensive to clean up the mess than to not make it in the first case. I understand that this is a small risk but who knows where the OP lies on the spectrum, or others finding this thread later. That is for them to decide. There is nothing wrong with getting the correct information.

 

[SmithOp]

Identity as in - fill in a purchase agreement? Yes.
Identity as in - show a government ID? No.

Note however, Scotland HGVC is not real estate. It's just a service contract, and taxed the same as hotel lodging.


1. W-9 is only for folks taxed as residents (that is, US citizens and US persons). See Part 2 of the form - you certify you are one. An overseas buyer would not sign a W-9 (unless they wanted to commit a crime of perjury)
View attachment 54457

2. I am not aware of W-9 being required for purchasing real estate. What's often misunderstood as "requirements to purchase real estate" is actually "requirements to obtain mortgage" - some of which are arbitrary (the bank decides they want it), and some of which are by law.

#2 you are correct, it's the seller that must provide the W-9 so that the closing company can prepare a 1099-S. As you say some companies want it from both parties.

My point was how would the UK tax authority be able to tie a financial transaction to a US taxpayer.

My background was in IT at a tax authority, running computerized audits.

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[CanuckTravlr]

@Nowaker

I never said choosing to take the risk of not reporting was inappropriate. I did say that in order to make a risk assessment, it involves knowing and trying to quantify what the potential risks are. Only then can you make an informed decision.

It is up to the individual involved (the OP in this case) to decide whether they are comfortable in assuming the risk, or whether they would prefer to explore professional or other help first to know what risk they might be accepting. Just because you are familiar with US tax rules, does not mean there could not be unintended and unforeseen consequences if the rules work differently in another country.

My commentary was solely to help point out some of those possible issues so the OP could make a more informed decision. The cost of professional help, particularly in a relatively mundane circumstance, may only be a few hundred dollars, not necessarily thousands. No professional that I am aware of (and I assume that includes you), would enter into an engagement without advising the client what it should cost.

If the cost is deemed to be too high relative to the risk, then it is up to the client whether they wish to proceed. Just because you think the risk is minimal (and it very well could be), doesn't make it so, nor does it mean everyone else has the same comfort level; what I call the "sleep factor".

Essentially we are on the same page, just approaching it from different angles. I'm outlining possible risks and how to potentially deal with them, if the OP wishes to do so; you are dismissing them since you think they are minimal.

 

[CanuckTravlr]

Also a CPA here. I believe that @CanuckTravlr is just trying to present the facts to allow the OP to make their own decision. Part of it is that our profession requires it, and I suspect that it is also because some of us have spent a career cleaning up other's messes. Some people ask first then go ahead and do it their own way anyway, others don't want to know. Either way, it's a lot more expensive to clean up the mess than to not make it in the first case. I understand that this is a small risk but who knows where the OP lies on the spectrum, or others finding this thread later. That is for them to decide. There is nothing wrong with getting the correct information.

Amen! Exactly explains my comments. We have all been there and had to clean up a mess after-the-fact.

 

[CanuckTravlr]

#2 you are correct, it's the seller that must provide the W-9 so that the closing company can prepare a 1099-S. As you say some companies want it from both parties.

My point was how would the UK tax authority be able to tie a financial transaction to a US taxpayer.

My background was in IT at a tax authority, running computerized audits.

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When we bought our HGVC property, they wanted me to sign a W-9. Fortunately, I have had some experience in dealing with dual-citizen clients, both Americans now resident in Canada and Canadians now resident in the USA. I declined, since we were purchasing outright (therefore no mortgage) and because both my wife and I are neither US citizens nor US residents for tax purposes. They went back to check and confirmed it was not needed.

As to other tax jurisdictions identifying a foreign property holder, there has been much change in the last 10 years or so in cross-border tax-sharing of information by national tax agencies. This was initially precipitated by 9/11 and the search for rooting out financial support of international terrorism and has expanded under anti-money laundering (AML) and proceeds of crime legislation, including multiple international agreements to which most western countries subscribe. Even Switzerland, once famous for banking secrecy, has been forced to open its records in many cases.

I am not that familiar with how that works with the UK and the USA, but the CRA (Canada Revenue Agency) and the IRS in the USA, have been regularly sharing data in recent years. Both agencies, but particularly the IRS, have been somewhat aggressive in using the agreement to root out income sources that in the past may have failed to report. So don't assume that just because you are a foreign national you can remain hidden.

 

[Cyberc]

One option with our Scotland purchases is to rent out the unit if we have too many points. I have questions about the tax implications.

1) The monies from rentals deposit directly into our Scotland HGVC account. If we keep those funds in the Scotland account and apply those funds to pay MF, then we are not subject to currency fluctuations. Would we also not be liable for U.S. income taxes since we are not repatriating the funds into the USA?

2) We pay a VAT tax when we rent out through HGVC Scotland. Is that sufficient tax for the UK? or will we be responsible to U.K. for further income taxes?

3) If we repatriate those funds to the USA, could we offset the rental income with the MF bill, Management fee, UK VAT and currency conversion fees to reduce tax liability?

Curious how much are the units renting for directly through HGV?

I’m an owner too and I didn’t know it was an option

 

[jabberwocky]

Also a CPA here. I believe that @CanuckTravlr is just trying to present the facts to allow the OP to make their own decision. Part of it is that our profession requires it, and I suspect that it is also because some of us have spent a career cleaning up other's messes. Some people ask first then go ahead and do it their own way anyway, others don't want to know. Either way, it's a lot more expensive to clean up the mess than to not make it in the first case. I understand that this is a small risk but who knows where the OP lies on the spectrum, or others finding this thread later. That is for them to decide. There is nothing wrong with getting the correct information.

You’re exactly bang on. When I was in public practice as a CPA, too often a potential client would seek out services after the transactions had already concluded and in many cases received an inquiry from the tax authority. IMO, the value that lawyers and accountants bring to their clients is in the planning. Tax planning is perfectly legitimate and legal. Tax evasion is not.

The other point I will add here is that where the tax authorities will really try to hurt you is penalties for not filing the proper forms. For instance, if a Canadian has assets outside of Canada with a cost in excess of $100k, you have to fill out a disclosure form listing these assets and the income received from them. If you don’t the CRA will nail you with a $25/day non-filing penalty to a maximum of $2500 even if no tax is owed. (And yes - these assets can include a US TS that you rent out on occasion). Many dual US/Canadian citizens got caught by the IRS with huge penalties because they did not file an FBAR form.

The average taxpayer doesn’t need an accountant to do their taxes. Off the shelf tax prep software will do just fine. But for those with slightly more complex income or assets, a good accountant can save you multiples of their fees.