Guide for non-resident landlords
All the basics of UK tax for your property business.
A complete guide for non resident landlords investing in UK property
Tax on rental income: in this section, you will find a guide aimed at non resident landlords with investment property in the UK.
This summary relates to a residential letting business which is applicable to most individual landlords. Special rules apply to the RENT A ROOM scheme and to HOLIDAY LETS. Hotels and Guest Houses are also excluded from these general rules until 5th April 2025 when Furnished Holiday Lettings (FHL) are treated the same as any other residential rental.
Non-residents
Special rules apply to non-resident landlords (see tax deduction below). A person is subject to UK income tax in any year in which he or she has any income arising in the UK which is untaxed or not taxed at the right rate (with special rules in the years of emigration and immigration).
- With effect from April 2015 all disposals of UK residential property by non-residents attract Capital Gains Tax.
- Similarly with effect from April 2019 all disposals of UK non-residential property by non-residents attract Capital Gains Tax.
Rents and allowable expenses
Rents less allowable expenses are taxable as part of the taxpayer’s total UK income. The main rule for allowable expenses is that they must be wholly and exclusively incurred in the course of the letting business, though some relaxation of this rule may be available in specific circumstances. It is important to differentiate initial costs and capital costs from running costs. Capital costs and set-up costs, which are capitalised, are usually relieved for tax purposes against the calculation of the gain on sale of the investment property. The cost of improvements is normally treated as increasing the base cost of the investment. Not all initial or capital costs will be allowable.
Finance costs, including loan and mortgage interest are not a deductible expense. However an amount equal to 20% of the finance costs may be deducted from the tax liability, subject to restrictions.
The lettings agent will incur other costs and, as long as these represent routine maintenance, these too will normally be allowable. No allowance is given for the cost of initial furnishings or equipment.
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How is rent determined?
For UK tax purposes, rent is the cash paid by your tenant to you or your agent in the tax year. Different rules apply if the amount is more than £150,000 or if the owner is a company. An individual may also elect to use the accruals basis but this is rarely done.
How are losses treated?
Special rules apply to the treatment of losses. While profits are added to a taxpayer’s income and taxed at the taxpayer’s highest rates, losses generally may not be set-off against income from other sources, except for losses created in a property business by Capital Allowances. Capital Allowances are not available in respect of residential property. Losses may be carried forward to offset future profits of the same property business.
Why is my agent deducting tax from my rent?
Unless told otherwise by H.M. Revenue & Customs (HMRC), managing agents must deduct basic rate tax from the rents collected and pay this to HMRC each quarter. Where there is no managing agent, the obligation to deduct and pay to HMRC the basic rate tax falls on the tenant, unless the rent falls below a de-minimis figure. The agent will not be aware of all your deductible expenses, reliefs or allowances, and therefore the tax deducted will be more than the amount due in many cases.
Can I receive my rent without the agent deducting tax?
Landlords can apply (on form NRL1) for a formal H.M. Revenue & Customs (HMRC) approval to receive rent gross, and on receiving this, the managing agent then need not deduct tax. This permission will be withdrawn if the landlord fails to keep his/her tax affairs up to date. This is only an exemption from having the agents deduct tax, it does not exempt the landlord from tax on rental income.
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Who needs to file a Tax Return?
The non-resident landlord must make an Income Tax Return whether any tax is due or not, unless unless he/she has been told in writing by the H.M. Revenue & Customs (HMRC) that a Return is not required. The Tax Return is made up to 5th April each year and must be submitted by 31st January following the end of the Tax Year when filed online. Non-residents cannot now use the HMRC online Tax Return filing software.
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What are Personal Allowances?
The Personal Allowance is an amount that may be received free of tax (see personal tax rates). Citizens of the EEA (EU + Iceland, Liechtenstein & Norway) are entitled to the Personal Allowance wherever they are resident. Citizens of the Commonwealth and countries with which the UK has an appropriate Double Taxation Agreement are entitled to the annual Personal Allowance if they are resident in their own country.
What happens when a property is sold?
Gains accruing after 5th April 2015 on disposals of residential property occurring after 5th April 2015 and made by non-residents are subject to UK Capital Gains Tax. Gains accruing after 5th April 2019 on disposals of non-residential property occurring after 5th April 2019 and made by non-residents are subject to UK Capital Gains Tax.
Capital Gains Tax Return
If you are disposing of a UK property (residential or non-residential), you MUST report the transaction and pay any tax due within 60 days of transfer (completion). In addition such disposal must be reported with the annual Self Assessment Tax Return.
