Have you recently moved abroad and continue to own property in the UK? Or perhaps you are considering moving abroad and may rent out your house. If so, then you may be wondering what UK tax you will incur on the property.
Who is a non-resident landlord?
The HMRC definition of a non-resident landlord differs from the standard statutory residency tests used to determine whether you are resident or non-resident for tax purposes. The statutory residence tests consider number of days spent in the UK and number of ties to the UK such as family, work and accommodation. However, a simpler definition is applied to landlords. A landlord is considered non-resident if their usual place of abode is abroad. An individual who is absent from the UK for more than 6 months of the year will be considered non-resident, and their usual place of abode will be outside the UK. It is possible to be resident in the UK for tax purposes but non-resident as a landlord for the purposes of the Non-Resident Landlords Scheme – see below.
Note that PO Box numbers and ‘Care of’ addresses are irrelevant for the purpose of determining whether the landlord is non-resident.
For Companies holding property in the UK, if the main office or other place of business is outside the UK, or they are incorporated outside the UK, then the usual place of abode will be outside the UK. However, if a company is considered resident in the UK for tax purposes, then this will over-ride the ‘usual place of abode’ and the company will be UK resident.
Rental income from UK property for non-resident landlords
Non-resident landlords are required to have 20% tax deducted from the rent paid to them by their letting agent or tenant. It is the duty of the letting agent or tenant to do this and to provide a certificate at the end of the tax year showing the tax deducted. The tax must be collected and paid to HMRC within 30 days of the end of each quarter. This is called the Non-Resident Landlords Scheme.
If you collect the rent directly from a tenant, rather than using a letting agent, they are obliged to deduct 20% tax, unless the rent they pay is less than £100 per week. Letting agents must operate the scheme regardless of the amount of rent collected.
The tax deducted will need to be entered in your self-assessment tax return and you may be able to recover some or all of it.
If you expect your UK tax liability to be lower than the 20% tax that will be deducted (for instance you may be entitled to the personal allowance and have no other UK income) then you can apply to have the rent paid gross. However, you need to obtain approval from HMRC. The application will generally be successful provided your UK tax affairs are up to date and there is no reason for HMRC to doubt that you will comply with your UK tax obligations. UK tax will still need to be assessed and paid on the rental income at the end of the tax year, by completing a UK self-assessment tax return.
HMRC will notify both you and the letting agent/tenant that the application has been approved and that tax no longer needs to be deducted. The start date will generally be from either 1 January, 1 April, 1 July or 1 October, and will start from the beginning of the quarter in which you apply.
For individuals the application is made on form NRL1 and for companies it is NRL2.
If the property is held in joint names, each owner needs to make an application to receive the rent gross.
Competex can make the application on your behalf – see link at the end of the article.
Letting agent obligations
Letting agents are required to register with HMRC Personal Tax International (PTI) within 30 days of the date they are first obliged to operate the scheme, whether they are deducting tax or not, using form NRL4i.
They must also
- account quarterly for any tax due to HMRC Accounts Office, Shipley
- submit an annual return to HMRC
- provide non-resident landlords with a certificate each tax year
- keep sufficient records to show that they have complied with the regulations
Self-assessment tax return
Even though you may be considered non-resident for UK tax purposes (per the statutory residence tests), if you own property in the UK then you are obliged to pay UK tax on income arising from it. Therefore, you will be required to submit a UK tax return.
If tax has been deducted from the rental income, the letting agent or tenant must provide you with a certificate at the end of the tax year called NRL6, to confirm the amount of tax collected.
There are various tax planning opportunities to consider as a non-resident. For instance, you can receive dividends from a UK company tax free, but you will then not receive the personal allowance (assuming it is available – see below). Therefore, it is important to assess which is the most tax efficient basis to select when submitting your return.
If you have made property disposals during the year you will need to complete the capital gains section of the return too.
To ensure all aspects are covered use Competex to prepare your self-assessment tax return.
Are you entitled to the personal allowance?
The personal allowance in the UK is currently £12,570 and will remain at this level until 5 April 2028.
As a non-resident you will be entitled to the personal allowance if any of the following apply:
- you hold a British passport
- you are a citizen of an EEA country
- you worked for the UK government at any time during that tax year
You may also qualify if it is included as a provision in the double-taxation agreement between the UK and the country you live in. You will generally be required to provide evidence that you are both resident and a national (by providing a copy of your passport).
Note that US citizens resident in the US are not entitled to the UK personal allowance under the double-tax agreement.
Stamp Duty Land Tax (SDLT) surcharge – residential property only
If you are non-resident and you buy residential property in England or Northern Ireland for £40,000 or more, you may be liable to a 2% stamp duty surcharge. A person will be considered non-UK resident if they are not present in the UK (not just England and Northern Ireland) for at least 183 days during the 12 months prior to the purchase. If several individuals are buying the property jointly, and one of them is non-resident, they are all treated as non-resident for SDLT purposes. However, if spouses buy the property in joint names, and one of them is UK resident, the other partner will also automatically be deemed UK resident. Further advice on SDLT can be sought from the solicitor handling the purchase.
Annual tax on Enveloped Dwellings (ATED) – residential property only
If you own UK residential property through a company, partnership or trust, then this is considered ‘enveloped’, and you may have to pay an annual ATED charge. This applies equally to property held in both resident and non-resident vehicles. The charge only applies to all such property with a value of more than £500,000. Relief is available in certain circumstances, such as if property is let on a commercial basis and satisfies other conditions. However, a return must still be submitted, and the relief is claimed on a Relief Declaration Return.
Returns cover the year from 1 April to 31 March and must be submitted by 30 April to avoid penalties. You will need to register to use the HMRC online ATED service or you can appoint Competex to handle this for you.
Capital gains tax (CGT) for individuals
Non-resident individuals are not generally subject to CGT on gains arising in the UK. However, gains made on property in the UK are taxable, but only from the date this was first introduced, which depends on whether the property is residential or commercial:
- UK residential property – taxed on gains arising from April 2015 onwards
- UK commercial property – taxed on gains arising from April 2019 onwards
Property purchased prior to the above dates will require a valuation to be carried out to assess the market value on 5 April 2015/5 April 2019. It is possible to make an election to use another method to calculate the gain (straight line apportionment or the original cost), if this would produce a better result (a lower gain). Therefore, it is important to calculate the gain using each method before deciding which one to use and reporting it.
If you are a higher rate taxpayer in the UK (total income more than £50,270) you will pay tax at 28% on gains from residential property or 20% on gains from other chargeable assets. If you are a basic rate taxpayer, the rates are 18% and 10% respectively.
Non-residents are required to report disposals to HMRC within 60 days of completion, even if no tax is payable, and will face a penalty for late or non-submission. They must also make an estimate of the tax payable and make this payment within 60 days (this was extended from 30 days on 27 October 2021). A computation of the gain or loss must be included with the return.
You will need to create a ‘CGT on UK property account’ using your HMRC login ID and password, to report and pay the tax. If Competex is your agent for self-assessment, then we can prepare the computation and submit the return on your behalf. However, you will still need to set up a property account first and let Competex know the account number you are allocated Set up HMRC Property Account
If the disposal was a property that was previously your main residence in the UK, then there is likely to be relief available, called principal private residence relief. The period for which the relief is given is exempt. Any gain arising will be apportioned between chargeable periods and non-chargeable periods. You would generally receive relief for any tax year in which you, your spouse or civil partner spent at least 90 days in the home. You also get relief for the final 9 months of ownership.
If you miss the 60-day deadline, for either reporting the disposal or paying the CGT, you will be charged a £100 penalty plus interest on late payments. If you are more than 6 months late a further penalty of either £300 or 5% of the tax payable will be charged (whichever is the greater). The same penalties will apply again if unsubmitted or unpaid after a year.
Capital gains tax for non-resident companies
Non-resident companies have been subject to tax on gains on residential property that arise from April 2015 onwards. From April 2019 these gains are taxed at corporation tax rates rather than CGT rates. In some cases, this will be favourable, given that the rate of corporation tax is currently 19%, but it will be less so once this increases in April 2023.
Non-resident companies are required to register for corporation tax within three months of a disposal of UK land or property. For a one-off disposal, this may mean filing a corporation tax return for an accounting period of a single day. The Corporation tax liability is generally due 9 months after the end of the accounting period.
As you can see there are numerous obligations to meet when you hold UK property. You may need further advice or may not want the responsibility of submitting all the necessary returns yourself. If so, appoint Competex as your agent to handle all of this for you. We can submit your NRL1 application, self-assessment tax return, CGT report on disposals and annual ATED return. Click here to request to engage us or contact us for further information.