What's the tax position for a non-UK resident landlord renting out a property situated in the UK? Christiaan explores the basics.
Recently we've had a lot of enquiries from landlords who live abroad or landlords who are planning to leave the UK, regarding their UK tax obligations. Let's explore some of they key issues.
WILL MY UK RENTAL INCOME TAXABLE?
A non-resident landlord will always be taxable on any rental income received in the UK.
HOW WILL THE RENTAL INCOME BE TAXED?
The tenant or letting agent will be required to withhold basic rate tax (20%) from the rents paid to the non-resident landlord. For example, if the tenant is due to pay £2,000 rent, then the tenant should pay the non-resident landlord £1,600 and HMRC £400 (£2,000 @ 20%).
It is also important to note that basic rate tax is only applied to gross rental income less any tax-deductible expenses paid by the tenant or letting agent out of the rental income. For example, if the letting agent collected £1,500 gross rent, but also had to pay repairs and maintenance costing £500 for the property, then only the net rent of £1,000 (£1,500 less £500) will be subject to basic rate tax. £800 will be paid to the non-resident landlord and £200 to HMRC.
It will be the tenant and agent’s responsibility to register with HMRC (using form NRLQ) and withhold tax before they are remitted to the non-resident landlord. The tax withheld should be sent to HMRC 30 days after each calendar quarter with a quarterly return. Calendar quarters run 30 June, 30 September, 31 December, and 31 March.
Each year, the tenant or letting agent will also complete an annual return and submit it to HMRC. The return is due by 5 July after the tax year and certifies the rents paid and tax withheld.
The tenant or agent will also produce a certificate for the landlord showing the tax withheld from the rents. The landlord will use this certificate to complete his or her self-assessment tax return.
THIS SOUNDS COMPLICATED, ARE THERE ANY ALTERNATIVES?
Most non-resident landlords want their rental arrangements to be more straightforward, not to mention avoiding the burden that is placed on tenants and letting agents in withholding and paying tax to HMRC.
The solution will be for the non-resident landlord to make an application to HMRC to receive his or her rental income gross from the tenant or letting agent. The landlord can apply online or by post via form NRL1.
HMRC will only agree to this application if the non-resident landlord promises to file a self-assessment return and pay his or her income tax on the due dates.
Once HMRC has agreed to grant the non-resident landlord scheme, there will be no requirement by the tenant or letting agent to withhold tax from the rental income. The landlord would simply report any rental income and expenses on an UK Self-Assessment Tax Return and calculate the UK tax liability without any deduction for tax.