Are you, or do you know anyone, based overseas, and letting property in the UK?
By Tom Annat
As with most tax systems around the world, the UK adopts the concept of “source taxation”. This means that the UK will have the right to tax certain income, profits or gains arising within its territory. This includes profits arising from a UK rental property business. The UK has the right to tax these profits even where the beneficial owner is not resident in the UK. Therefore, non-resident landlords of UK property will have certain tax obligations placed upon them and these are considered below.
Non-UK resident landlords with UK rental profits are likely to be required to register with HMRC for self-assessment and file annual Tax Returns. If a tax liability arises, then this will be payable by the following 31st January after the tax year end. In some circumstances, payments on account in January and July may be required. British citizens will be entitled to a UK personal allowance. Other nationals will need to consult the relevant double tax treaty to see if an allowance is available to them.
Non-resident Landlord Scheme (NRLS)
The NRLS is a legal framework which requires a property agent to deduct basic rate tax from UK rental income before it is paid over to the non-resident landlord. If there is no agent in place, then this obligation falls onto the tenant. Upon subsequent filing of a Tax Return, the tax paid under the NRLS scheme is available as a deduction when computing the total UK liability.
Who is considered a non-resident landlord?
An individual will be treated as a non-resident landlord if they have a ‘usual place of abode’ outside of the UK. In practice, an absence from the UK of six months or more will mean a person has their usual abode outside of the UK. Somewhat confusingly, the rules for the NRLS scheme do not follow the UK residency rules for tax purposes. Therefore, a person may be UK resident for tax purposes but still be a non-resident landlord.
What are the options?
Clearly, having tax deducted at source will present a cash flow disadvantage. It will also pass unwarranted obligations onto the property agent or tenant. The solution is that the landlord can apply to HMRC to receive rental income gross. The application form (NRL1) can be made either online or by post. If the property is jointly owned, then each owner must make an application. The receipt of gross rental income does not mean the income is not taxable in the UK. A Tax Return will still be required and any tax liability arising will need to be settled with HMRC after the end of the tax year.
Other tax jurisdictions
It is important to check the position in the country you are tax resident, as you may also have a tax filing obligation and liability in that country. There may be relief from double taxation, but the position will need to be confirmed by reference to the relevant double tax treaty.
Companies and trustees
Companies and trustees can also be non-resident landlords and a similar framework exists for these entities.
If you require assistance with any of the matters discussed above, then please contact Tom Annat. In particular we can assist with registering as a non-resident landlord, filing UK Tax Returns and assisting with historical tax issues which may have arisen.