Posted by Nick Day on 14 Sep 2018
Non-Resident Landlords – A UK Tax Update
In the face of continuing budgetary pressure on the UK Treasury, HM Revenue & Customs (HMRC) is continuing its drive to collect the right amount of tax owed by non-residents on UK property letting income.
Income tax payable on UK property income
If you are a non-resident of the UK and/or you have your “normal place of abode” outside the UK you need to register with HMRC as non-resident landlord if you receive income from letting out UK property. If you do not, either the letting agent you appoint or the tenants that pay the rent must withhold 20% tax at source from your UK rental income. In our experience, most tenants are not aware of this onerous obligation and many agents are also not aware.
Spouses who are joint owners of property must each register separately under the scheme to avoid the tax withholding.
We regularly see individuals who are under the mistaken belief that UK income tax is not due on their UK property income if they are tax resident in another country and reporting the income there. This is an incorrect assumption and under UK domestic tax law (and international tax treaty law) the UK will have the first right to tax your income from UK situated real estate, even if it is also subject to tax in another country.
For British/EU citizens, a “Personal Allowance” can be deducted from the profit before the normal income tax rates are charged on the property income. This Allowance is currently £11,850 for the 2018-19 tax year with income tax then charged for each individual at the following rates:
|Income Tax Band||Income Tax Rate|
|£0 to £34,500||Basic rate||20%|
|£34,501 to £150,000||Higher rate||40%|
|Over £150,000||Additional rate||45%|
If you are also liable to tax in a foreign country on your UK property income, you will need to claim a credit for the UK tax you pay against the foreign tax charged on the same income in your country of residence.
If a non-resident company owns property in the UK then it must also pay tax on any rental income it receives but the above graduated rates do not apply and tax will be payable by the company at a flat rate of just 20%.
Non-resident trusts are also liable to UK tax on UK property income and the Tax Return filing deadline for these trusts is 31 January after the end of the UK tax year (5 April) if the Return is filed online with HMRC.
Non-resident landlords who are individuals/companies should also file a UK Self Assessment Tax Return with HMRC at the end of each tax year to report taxable profit/loss. The deadline for submitting a Self Assessment Tax Return for the 2017-18 year online with HMRC is 31 January 2019. Careful records should be kept of all income together with deductible expenses, such as mortgage interest, insurances and repairs/maintenance. Non-resident individuals also need to report the number of midnights spent in the UK in each tax year.
We have assisted 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.
Capital gains tax (CGT) payable on the sale of UK properties
Important new rules were introduced in April 2015 meaning that non-residents of the UK potentially are now liable to UK capital gains tax on the sale of UK residential properties – and must report relevant disposals within 30 days of conveyance, whether or not a capital gain has been made! Please refer to our previous article for more information on this:
These CGT rules for non-residents are being extended to also cover commercial UK properties disposed of from 6 April 2019 onwards.
If you would like any advice regarding the above article 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 email@example.com.
- Top 10 Expat Tax Tips for Individuals Moving to the UK
- Property Partnership Incorporation and SDLT
- Overseas Pension Changes 6 April 2017
- Tax Relief For Residential Mortgages
- Non-Cash Employee Benefits