Non-resident landlords come in many forms – for example, they could be expats or foreign investors who are receiving UK rental income but whose ‘usual place of abode’ is outside the UK.
If you’re one of a rising number of people moving abroad but choosing to retain rental properties within the UK, or an overseas investor buying a UK property, it’s important to bear in mind the main tax implications.
Here are some points that non-resident landlords need to be aware of:
Non-Resident Landlord Scheme
The Non-Resident Landlord Scheme (NRLS) taxes the UK rental income of a person who has a usual place of abode outside of the UK – or someone who is out of the country for six months or more.
Where an individual is subject to the scheme, the letting agent (anyone who manages property on behalf of a non-resident landlord), or tenant meeting certain criteria, is required to withhold the basic rate of income tax from the rent paid to the landlord and file returns to record the tax that has been withheld. This can then be credited against the tax due on the income of the property.
HMRC allows non-resident landlords to make an application to receive the gross income and settle the tax via self-assessment. This can be particularly useful where an individual is entitled to the UK tax-free personal allowance and it is their only source of UK income, meaning that the 20% withheld would be more than the eventual liability due.
Income Tax
It’s important to remember that the income received from renting the property is still taxable in the UK, even if the individual is not tax resident in the UK. It may also be taxable in the country where the landlord is living and cross-jurisdiction tax issues are complex. We would always recommend specialist advice to help you either understand your position or rectify your position with regards to any incorrect filing in previous years.
HMRC runs a specialist campaign, called the Let Property Campaign, which provides all residential property landlords who have undisclosed taxes (living in the UK or abroad) to get up to date with their tax affairs while taking advantage of the best possible terms. The main benefits of taking part in the scheme are reduced penalties, which can certainly add up.
Capital Gains Tax
Non-UK tax residents are also subject to Capital Gains Tax on the sale of a UK property. The amount of tax payable can be mitigated by the UK annual exemption and Private Residence Relief, which can be available to reduce a taxable gain if you have lived in the property as a main residence during the period of ownership.
It’s also important to note that the non-resident landlord scheme is not limited to individuals. Trustees and companies can also be non-resident landlords, although different rules can apply in each case.
If you’re the landlord of a UK property who resides outside of the country for six months or more each year and would like more information and further tax advice, please contact our Private Client team on 0333 1237171 or visit Private Client – BHP, Chartered Accountants.
