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Below I have explained some of the issues to be aware of, mainly in terms of tax, when considering whether or not to rent out your Hungarian property as a private landlord (private individual/self-employed person) from the UK; perhaps living in the UK and Hungary (off/on) and/or in the possession of either an indefinite or temporary Hungarian Residence Permit thereby officially making you a Hungarian Resident.
The information below is NOT a 'step-by-step guide to renting out property in Hungary' or the definite process of 'how to set up a LTD Company in Hungary', but is more of a 'general overview of the considerations and costs involved prior to creating a rental income’.
If you want to rent out your Hungarian property to tourists, students and/or local people you must inform Nemzeti Adó és Vámhivatal (National Tax & Customs Administration), the equivalent of HMRC in the UK, that you want to create a rental income from your property and therefore become a tax payer; by filling in Tax Code Form 14T34. The type of entity you are (i.e. self-employed) will determine what paperwork you submit to the tax office and how much tax you will pay.
Private Landlord - If you want to rent out your Hungarian property as a private individual (private landlord) to a local person and/or student you first need to visit the local tax office to fill out the necessary paperwork whereby at the end of each tax year (31st December) the NTCA will then automatically send you an Annual Tax Return form to fill in. This process is the equivalent of Self-Assessment in the UK. You will pay 16% tax on any profit.
Self-Employed - If you want to rent out your Hungarian property as a private individual (private landlord) to a tourist you cannot. This is seen as a business venture, which means you must register yourself as a self-employed person (business). You can either visit the local tax office to fill out the necessary self-employment paperwork or you can leave everything to an accountant. Either way you will then receive your Tax Code (Adószám), which is the equivalent to a UK UTR (Unique Tax Reference).
Depending on your circumstances: As a self-employed person you may have to prepay your income tax each month, at a rate of 16%, which would then be deducted from your Annual Tax Return.
If you do not speak/write/understand Hungarian I would strongly recommend hiring an accountant, regardless of their costs.
In Hungary a Tax Code also acts as a V.A.T Number, hence the confusion with some UK Citizens when asked for their V.A.T Number whereby they reply "I do not have a V.A.T Number because I am not V.A.T registered. All I have is a National Insurance Number!"....."Do you want my N.I or UTR?"!! A Tax Code is always 10 Digits long and always starts with the number 8.
Unlike in the UK where you have three months in which to inform the tax office (HMRC) that you are currently working (and have been working), in Hungary you must register as a tax payer first (i.e. register as self-employed) before doing any work whatsoever.
Limited Liability Company - Setting up as a LLC (KFT) in Hungary is something you should do using a Hungarian lawyer and accountant, preferably face to face, due to the vast complexities involved. It is because of these complexities, the scope of law experience needed and the differences in individual cases that I will not be discussing LLC any further. You really need to ask the professionals one-on-one questions, as opposed to trying to find all the answers on the Internet; especially with the language barrier being present.
Renting out a Hungarian property as a self-employed person or private individual is simply a case of filling in the necessary NTCA forms, as described above, and therefore much easier to accomplish than LLC set up. Furthermore, this website is only catering for the 'average individual' (personal landlord / self-employed landlord) wanting information about buying, renovating and/or possibly renting out an (one) apartment; as opposed to a block of apartments or huge farmhouse. Hence another reason for not delving into the LLC set up arena.
If you rent out your Hungarian property you must declare that 'foreign rental income' as part of your UK Annual Tax Return (self-employed / partnership) or as part of your UK Self-Assessment (private individual) if applicable. The self-employed and partnerships must declare their foreign income on the Self-Employment page of their annual tax return and NOT on its Foreign pages.
Foreign income from furnished holiday lettings in the European Economic Area must be declared in the UK Property pages. However, where that foreign income is taxable on the remittance basis you should declare it on the Foreign pages instead.
Failure to declare income that arises from outside the UK could see you with a penalty of up to 200% of the tax due on that income. For more information about British tax on 'foreign income' and your obligations, read the HMRC Foreign Income NotesHMRC Foreign Income Notes PDF File. Or better still, contact your UK accountant!
Before buying a Hungarian property you should know of the country's Housing Situation, Financial Situation and Monthly Living Expenses. With that knowledge you then need to put the above Tax System into the equation.
If you are going to rent out a Hungarian property, such as a one bedroom 48 Square Metre Szeged apartment, to a local person for example the maximum rent you could charge per month would be between £100 (old, unrenovated apartment) and £150 (new, fully renovated apartment). At a tax rate of 16% (£16 - £24) that would leave you with a profit of £76-£84 per month. Renting out to a tourist at £20-£25 per night, in summer only, may sound like a better idea but the self-employment tax could work against you.
In many countries becoming self-employed or setting up a limited company often helps cut down on the taxes, but in Hungary it is the opposite! Being self-employed in Hungary not only means paying National Insurance and Retirement Contributions, but it also means paying towards Government Schemes such as the Education System; whether you like it or not! In real terms this could mean you paying up to 50% of your rental income towards tax and insurance schemes.
It is not all doom and gloom though, but more of a numbers game - You either buy and rent out multiple properties (as a limited company or self-employed) or buy and sell one property at a time (as a private individual) whereby you upgrade to a larger property each time in order to charge a higher rent each time. Then again, if you are a family or have a Hungarian partner you could buy one property each.....
The above rent prices are based on an apartment in Szeged, rented out by a private landlord. If you buy an apartment in Budapest you can almost triple your rental income simply because, just like in any country, the capital city almost certainly earns more money than the outer cities and towns due to higher population, better paid jobs and more tourist.
On the plus side, university cities such as Pécs and Szeged have all year round student rental income whereas Budapest is more of a summertime only tourist rental income. Hungary in general is a place where you would live in your first property that was funded by the rent from your second property.
If you take into consideration the tax you will pay the Hungarian government, and maybe the British government (usually the difference between the two rates of tax), on top of accountants fees in both countries you might conclude it is not worth the hassle of renting out property in Hungary. However, it can be worth it if you do your research and sums properly…..
The NTCA has certain measures to combat Tax Avoidance, such as the Address Card and .hu Domain Names. On the face of it, especially when you receive an address card yourself (with your Residence Permit), you find yourself wondering “What is the purpose of this address card?". Although it can be used to receive discounts, a monthly mobile phone contract and the ability to join a college course for example it is pretty useless! Or at least that is what you might think.
To the NTCA an address card is a fantastic system - If you rent out your Hungarian property to a local person for example that tenant will need (and has the right to) their own 'permanent' address card, registered at your address, so they can get the same benefits as you. It will be difficult finding a tenant who does not need an address card. Even foreign students need a 'temporary' address card.
As you rent out to many students over a long period of time the NTCA could build a case against you whereby it can be proven you have had many people staying at your property, with the assumption not all of them were staying at your property for free.
A .hu Domain Name works slightly differently for the NTCA - To register a .hu domain name means providing your Tax Code, which in turn means (or at least implies) you will be using that .hu domain name for business purposes (i.e. to set up a 'rental income' website); even if you are really using it for a non-profit hobby website. Obviously the website content could be checked, but if the NTCA feels you are profiting from that website in some way…..
Never think of the NTCA as stupid - When I bought my Szeged apartment the tax man visited me to make sure the apartment was not sold too cheaply. He was not investing me though, he was more concerned if the seller had tried to avoid tax in some way by selling the apartment too cheap.
In my case all was well. The apartment was sold at the correct price. It does show though that the NTCA is prepared to chase up a 4% stamp duty worth around £500. And with them being prepared to chase up £500 I am pretty sure they would be prepared to chase up £500 in owed tax from rental income.
Another crucial thing to remember when thinking of buying and renting out a Hungarian property is that being granted a Hungarian Residence Permit (as a UK Citizen, UK Resident and Property Owner In Hungary) automatically makes you a "Hungarian Resident" too; which could mean changes in the tax laws for both countries any time in the near and/or distant future.
You can find European 'higher education' exchange students to rent out your Hungarian apartment by advertising it on the Szeged Erasmus Student WebsiteErasmus website. Although the Erasmus website allows you to post a free advertisement, you still have to pay for your contact details to be visible on it. At this time 5 Days is €14.90 (approx. £11), 10 Days is €19.90 (approx. £15) and 30 Days is €29.90 (approx. £22).
You could advertise on DeliaPro WebsiteDeliaPro, Booking.com WebsiteBooking.com, Real Estate Hungary WebsiteReal Estate Hungary or TripAdvisor via their Holiday Lettings WebsiteHoliday Lettings website - They have a FREE Listing whereby you pay 3% + V.A.T per booking you accept or a 1 Year Listing that costs £359 + V.A.T. Social Media, Forum and FREE Classified Ad websites would be other places to consider advertising with. Jofogas WebsiteJofogas is very big in Hungary. You can also find tenants by advertising your property on the University of Szeged's 'community board', through student hangouts and through Estate Agents.
Caution! Tenants have rights in Hungary, to the point where they can be difficult to evict. And the courts do not help either by being slow to act. In any country you get minor disputes between tenants and landlords, with most of them being settled out of court, but in Hungary it pays to have a lawyer-proof tenancy agreement drawn up. You may never get a dispute with your tenants, but it pays to know your rights too. So check with your lawyer about Landlord Rights and Tenant Rights.
After reading on the Internet about Szeged accommodation, university students and tourists you may come to the conclusion, because you have been lead to believe, that only apartments in the city centre of Szeged are ideal rental income because students and tourists will not want to stay too far away from the city centre; which is complete nonsense of course.
Students will have a Student Travel Card whereby they could easily travel 10-15 minutes by trolley bus/tram from your outer city centre apartment to the university of Szeged in the city centre. Even if they had to walk, due to lack of public transport for example, Szeged is a walkable city whereby it would only take a maximum and average walk of 20-30 minutes to reach the university of Szeged from your outer city centre apartment. Cycling would be another option.
Another piece of Internet nonsense is the notion that accommodation is much cheaper in the city centre and next to the university of Szeged. How can a city centre apartment be cheaper? Especially one that is on the doorstep of the university, tourist attractions and shops.
As an owner you would of paid more money for these benefits, which you would of happily done so in the knowledge you could charge higher rents to students and tourists. On top of you would be forced to charge a higher rent due to the buildings overall condition, infrastructure, location and age.
It will be in old Szeged, which usually means old building built with high ceilings in each apartment (expensive to heat), close to other buildings and trees (blocking out natural sunlight and warmth), located nearby a busy, noisy, main street and have problems with its lift (maintenance costs). Overall the apartment may be too small, dark and depressing in the Winter, especially when the bitter cold creeps through the windows. Hence, if you were to buy such an apartment you would have to renovate it well and therefore add a little more to the rent to cover renovation costs.
The advantage of buying an outer city centre apartment is that you normally get more space for your money, which in turns usually means lower monthly maintenance fees thereby allowing you to lower your rent slightly. Enough to encourage students and tourists alike to stay in your outer city centre apartment.
In the outer city centre the student, and tourist with family, has more freedom of space (i.e. parks for the young children to play in and the freedom to cycle and take long walks), the ability to enjoy local life (i.e. visit outer city centre billiard rooms, gymnasiums, bars and clubs), mingle with the locals and generally shop cheaper.
One thing to remember here is that not all students want student accommodation that consists of a student lifestyle of binge drinking and partying! Some want a quiet life. Higher Education students could be aged between 25 and 45 for example, if not older.
Teachers may want to rent an outer city centre apartment too, as would other professionals. These people are not stupid. They know that outer city centre accommodations are normally cheaper and slightly bigger than those in the city centre. So do not be put off from buying and renting out such an apartment. It does have advantages for you and your potential tenants.
Hopefully the information above has made you more aware of the realities associated with renting out property in Hungary. Owning a property in Hungary is not about 'getting rich quick' or about 'a huge rental income', but is more about 'investing for the future'; hopefully when the EU has defined itself properly. Meaning, do not be put off by these realities but make them work in your favour. Renting out property can work, but it takes time and an understanding of the Hungarian system to develop a true rental income.