Posted by Nick Day on 15 Aug 2014

Non-Resident Landlords UK Tax

With much speculation at present that the Government will no longer allow non-residents of the UK to claim the UK Personal Allowance (currently worth £10,000 per individual per UK tax year), it is worth considering the impact this will have on British expats (Non-Resident Landlords) who rent out UK properties.

Just as a reminder, 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 (i.e. brought) to the UK, although specialist advice is recommended in this area due to the complex nature of the UK tax rules.)

However, “non-residents” of the UK are taxed on UK sourced income only.  The main such source we see reported on UK tax returns prepared for non-residents 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 a false assumption 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.

For individuals, the current rates of UK income tax for property income are as follows:

Income Tax Band

Income Tax Rate

£0 to £31,865 Basic rate      20%
£31,866 to £150,000 Higher rate      40%
Over £150,000 Additional rate      45%

Non-Resident Landlords Personal Allowance

For British/EU citizens, a Personal Allowance can be deducted from the profit before the above rates are charged.  As noted above, this Allowance is currently £10,000 for the 2014-15 tax year but if it is not available in future, or only available to certain non-residents (the Government is presently consulting on whether there will be exceptions to the new rules) then any UK profit will be taxable at the above rates and it will be up to individuals 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 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 2013-14 non-resident Trust Tax Returns need to be submitted by 31 October 2014 to beat this deadline and avoid penalties.

Whether you are an individual or an entity such as a non-resident company or trust, tax will be withheld at source from your gross UK sourced 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 UK Tax Return

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 has been 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.

Please see below links to other articles that are connected with this subject and that may be of interest:

Non-Residents Consultation Personal Allowance

Taxation UK Property Income

Contact Tax Innovations about Non-Resident Landlords Tax

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 customerservice@taxinnovations.com.