Guidance for non-residents owning and renting out UK property.
Income tax payable on UK property income
Individuals that are non-residents of the UK and/or who have their “normal place of abode” outside the UK need to register with HMRC as non-resident landlords if they receive income from letting out UK property. If they do not, either the letting agent they appoint or the tenants must withhold 20% tax at source from the rental income.
Spouses who are joint owners of property must each register separately under the scheme to avoid the tax withholding.
We regularly see 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 an incorrect assumption and under UK domestic law (and international tax treaty law) the UK will have the first right to tax 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 £10,600 for the 2015-16 tax year with income tax then charged for each individual at the following rates:
| Income tax band | Income tax rate | |
| £0 to £31,785 | Basic rate | 20% |
| £31,786 to £150,000 | Higher rate | 40% |
| Over £150,000 | Additional rate | 45% |
If the taxpayers are also liable to tax in a foreign country on their UK property income, they will need to claim credit for the UK tax against foreign tax charged on the same income in the 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 October after the end of the UK tax year (5 April). So for example, 2014-15 year non-resident Trust Tax Returns need to be submitted to HMRC by 31 October 2015 to meet this deadline and avoid penalties.
Non-resident landlords should also file a UK 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 2014-15 year online with HMRC is 31 January 2016. Careful records should be kept of 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 fully furnished basis, although the Government plans to abolish this relief from April 2016 onwards.
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 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 properties – and must report relevant disposals within 30 days of sale, whether or not a gain has been made! Please refer to this article for more information on this.
If you would like any advice on this topic please contact us on 01962 856 990 or customerservice@taxinnovations.com.
Please call us on 01962 856 990 or visit our contact page.