Posted by Nick Day on 25 Jul 2013
Individuals that are UK tax residents and domiciled in the UK pay tax on their world-wide income and capital gains. (If you are UK tax resident but non-domiciled, you may be able avoid UK tax on your non-UK sources of income and gains if they are not remitted (brought) to the UK, although specialist advice is recommended in this area due to the complexities in the UK tax law.)
However, “non-residents” of the UK are taxed on UK source income only. The main such source we see reported is rental income from UK properties, although we often come across individuals who believe that UK income tax is not due on UK property income if they are tax resident in another country and reporting the income there. This is incorrect and under UK domestic law and international tax treaty law, the UK will have the right to tax income from UK situated real estate, even if it is also subject to tax in another country.
Current Rates of UK Income Tax for Property
For individuals, the current rates of UK income tax for property income are as follows:
|Income tax band||Income tax rate|
|£0 to £32,010
|£32,011 to £150,000
For EU citizens, a Personal Allowance can be deducted from the profit before the above rates are charged. This Allowance is currently £9,440.
If a non-resident company owns property in the UK then it must also pay tax on any rental income but the above graduated rates do not apply and tax will be payable by the company at a flat rate of 20%.
Non-resident trusts will also be liable to UK tax on UK property income and the Tax Return filing deadline for these trusts is 31 October after the end of the UK tax year (5 April). So 2012-13 non-resident Trust Tax Returns need to be submitted by 31 October 2013 to beat this deadline and avoid penalties.
Non Resident Landlord Scheme (NRL)
Whether an individual or an entity such as a non-resident company or trust, tax will be withheld at source from your gross UK source rents unless registration is carried out under HM Revenue & Customs’ (HMRC) Non-Resident Landlords (NRL) Scheme. In cases of non-registration, there is a legal obligation for the UK tenant or letting agent to withhold tax and pay this over to HMRC.
Non-resident landlords are able to apply to HMRC for approval to receive UK rental income gross without the deduction of income tax at source providing they register with HMRC and their UK tax affairs are up to date.
Non-resident landlords should also file a UK Tax Return with HMRC at the end of each tax year to report taxable profit/loss. Careful records should be kept detailing all income together with deductible expenses, such as mortgage interest, insurances and repairs/maintenance. It is also possible to claim a 10% “wear and tear” allowance, normally calculated as 10% of gross rent receivable, where the UK property is let on a furnished basis.
We have helped many non-resident landlords who were not previously compliant bring their affairs up to date with HMRC and we will ensure you pay no more than you need to in terms of tax and potential penalties. HMRC are currently running “catch up campaigns” that will allow you to bring your affairs for past years up to date and ensure only minimum penalties are charged.
Finally, a recent development is that if you are non-resident and run a UK holiday lettings business, it appears as though you should be accounting for VAT unless you have a UK appointed agent to manage the business for you.
This is because you will not be eligible for the £79,000 VAT registration threshold allowing you to make £79,000 of annual sales before you need to register for VAT. Please note that this is only an issue for those with UK “holiday let” businesses and not those non-resident landlords that merely rent out UK residential property.
Non-Resident Landlords Tax Advice
If you would like any advice regarding non-resident landlord tax advice or would simply like to discuss other ways in which we could help you or your business, please contact us on 01962 856 990 or firstname.lastname@example.org.
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- Non-Resident Landlords – UK Tax Update
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- UK Property Sales: Capital Gains Tax for Non-Residents
- Top 10 Expat Tax Tips for Individuals Moving to the UK