Many landlords who own property in the UK live outside the country and their only investment here is in properties.
They have to follow UK tax rules for the rental income they earn. Also, if they make a profit by selling their UK property or land, they might have to pay Capital Gains Tax in the UK.
If the country where they live taxes their UK income, they might be able to avoid paying tax twice by claiming relief in the UK. But this is only possible if that country has a "double-taxation agreement" with the UK.
WHAT IS THE NON-RESIDENT LANDLORD SCHEME?
People who earn rental income in the UK but live elsewhere are called "non-resident landlords" by HMRC, whether they're considered UK residents for tax or not.
Under this scheme, landlords, tenants, and letting agents must follow strict rules to avoid fines. Tenants or letting agents have to deduct tax from the rent before paying it to the landlord living abroad. They then need to pay this tax to HMRC every three months.
When the overseas landlord fills out their UK Self Assessment tax return, they can claim the tax withheld by their tenant or letting agent as a deduction against their UK tax bill. Non-resident landlords might be able to arrange to receive their full rent and pay the tax themselves through Self Assessment tax returns.
HOW MUCH TAX DO YOU PAY ON RENTAL INCOME?
The first £1,000 of rental income is tax-free, but only if you don't have any rental expenses to deduct. Depending on your situation, you might also have a tax-free Personal Allowance of £12,570 a year (for the 2023-24 tax year).
You need to report your rental income through a Self Assessment tax return if it's between £1,000 and £2,500 a year. If it's between £2,500 and £9,999 after deducting allowable expenses, or £10,000 or more before expenses, you must report it.
You pay Income Tax on the profit you make from renting out your UK property after deducting allowable expenses. These expenses include fees to agents, lawyers, accountants, insurance, maintenance, repairs, cleaning, gardening, and so on.
Income Tax rates are 20% for income between £12,571 and £37,700, 40% for income between £37,701 and £125,140, and 45% for income over £125,140.
If you prefer to pay tax via Self Assessment, you can apply by filling out form NRL1 and sending it to HMRC. However, your application might be rejected if you have overdue tax returns or payments.
REPORTING YOUR UK RENTAL INCOME TO HMRC
In most cases, you have to complete a Self Assessment tax return if you earn rental income from property in the UK.
If you're non-resident in the UK, you can't do this online using the HMRC free service. Instead, you must fill out a Self Assessment tax return, an SA109 form, and an SA105 form and send them to HMRC by post, or use commercial Self Assessment software that supports online reporting. HMRC might tell you not to report rental income if you earn relatively little.
Alternatively, you can hire a UK-based tax professional to report your UK rental income to HMRC for you. If tax is already deducted by a letting agent or tenant before they pay you, you don't need to pay HMRC any more tax on your UK rental income.
If you miss the deadline for filing your Self Assessment tax return, you're likely to face a fine. The postal filing deadline is midnight on 31 October, following the end of the tax year on 5 April. For a hassle-free tax filing, trust Apex Consultancy to assist non-resident landlords every step of the way.
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