By Maurice Shasha
// Thu 3rd
If you have been living outside the UK for more than six months in any tax year, and earn rental income in the UK, you must register, even if you are a UK citizen.
Did you know that if you live outside the UK, but let a property here, you are classed as a non-resident landlord and must register with HMRC?
If you have been living outside the UK for more than six months in any tax year, and earn rental income in the UK, you must register, even if you are a UK citizen. The statutory residence test, and other tax definitions of residence, do not apply to non-resident landlords.
Joining the non-resident landlord (NRL) scheme is not optional and failure to pay your tax could land you with significant fine. So it’s essential that you understand your tax liabilities and how the money will be collected - read on for a guide to everything you need to know about the NRL scheme.
What is a non-resident landlord?
Property investors are considered non-resident landlords if they spend more than six months living outside the UK, in any tax year. The place where you live during your time away from the UK does not have to be your permanent home for you to be considered a non-resident landlord.
Non-resident landlords include companies which let properties in the UK but have a registered office overseas. Crown servants, including diplomats and members of the armed forced posted overseas, are also considered non-resident landlords. You cannot claim that the UK is your usual home on the basis of having a PO Box or forwarding address.
What are your tax liabilities as a non-resident landlord?
As a non-resident landlord you are obliged to pay tax on rental income from UK properties. If you are a British national, you are entitled to the UK personal tax allowance. This means that no tax would be payable in the UK on rental profits of less than the allowance, providing that this is your only income in the UK.
Even if you are not a UK national, you might still be entitled to the UK personal tax allowance, depending on your nationality and country of residence. There are currently taxation treaties with the EU and some other countries.
If you are the joint owner of a property, your taxable income will be assessed according to the share of the property you own.
Please get in touch if you require clarification as to whether you are entitled to the allowance. The property experts at Plaza Estates will be happy to help.
How is the tax on your income collected?
Your tenants or letting agents are usually responsible for deducting basic rate tax from any rental payments. Any tenants who pay less than £100 a week directly to you do not have to withhold tax. They must, however, make an annual return to HMRC declaring the rent they have paid.
Letting agents must withhold tax on all rents collected; there is no £100 threshold. They must then make an annual return to HMRC declaring the rents they have collected on your behalf. You should be aware that a friend or relative collecting rental payments for you will be considereda letting agent.
Tenant-finders for non-resident landlords
If you employ anyone to source tenants for your property, they do not have to withhold tax on any rental payments collected in advance from tenants as long as:
• The fees for sourcing the tenants are deducted from the rent collected
• The rent collected covers a period of no more than three months and the tax due on this is less than £100
NRL scheme application to receive income gross
If you wish to receive your rental payments before tax (gross), you should complete form NRL1 and submit this to the HMRC Centre for Non-Residents. HMRC may grant approval and will notify your tenants or letting agent. Your profits will remain taxable but receiving gross payments may improve your cashflow.
As a non-resident landlord, you will not have a special tax return to complete. You should simply declare your rental income and expenses on the UK property pages (SA105) of the self-assessment return. Companies should complete and file a corporation tax return (CT600).
Non-resident landlord scheme guidance
The non-resident landlord scheme can seem confusing. If you feel that you require further clarification, we are always here to help. Our property experts make sure they stay up-to-date with the law and tax regulations and can guide you through the process and ensure that you fulfil your tax liabilities in the UK.