Are you thinking of buying property in the UK and, if so, are you going to rent it out to tenants?
If you do so, you’ll become what’s known as a non-resident landlord meaning you’ll need to understand what this actually entails.
The long and short of it is that a non-resident landlord is someone who receives rental income from a UK property while living abroad for more than six months in a tax year.
But it’s not quite that simple and there are plenty of tax implications to such a move.
One of the main advantages of becoming a non-resident landlord, however, is the potential tax relief available in your country of residence, depending on double taxation agreements between the UK and that country – one of the many reasons people decide to buy property here.
However, it’s crucial to remain compliant with UK tax laws to avoid penalties and the process is fraud with taxation pitfalls.
Tax implications for non-resident landlords
As a non-resident landlord, you are still liable to pay UK Income Tax on your rental income.
The Non-Resident Landlord (NRL) Scheme dictates that either your letting agent or tenant must deduct basic rate tax from your rent before it is paid to you.
This tax is then paid to HM Revenue & Customs (HMRC) on your behalf.
However, you can apply to receive your rental income gross, without tax deductions.
To do this, you need to apply to HMRC using the NRL1 form if you are an individual, or NRL2 if you are a company.
Approval means you will be responsible for calculating and paying your tax through Self-Assessment, rather than having it deducted at source.
Despite not living in the UK, you are still required to file an annual UK tax return if you receive rental income from UK property.
This return should detail your total rental income, allowable expenses, and any tax already paid under the NRL Scheme.
You can offset various expenses, such as letting agent fees, maintenance costs, and mortgage interest, against your rental income to reduce your tax liability but we highly recommend speaking to a qualified tax adviser to do so.
If you get some calculations wrong, they can lead to financial penalties and fines.
Maintaining compliance with UK tax laws
To ensure compliance with UK tax laws as a non-resident landlord, you’ll want to follow these steps:
- Register with HMRC: Inform HMRC of your non-resident landlord status and register for the NRL Scheme. This will set the groundwork for your tax obligations and communication with HMRC.
- Apply for gross rental income: If you prefer managing your tax affairs through self-assessment, apply for approval to receive your rental income without tax deductions. This application should be done using the appropriate NRL form.
- File an annual tax return: Even if you receive your rental income gross, you must file a UK tax return each year. This ensures that all your income and expenses are reported accurately, and any due tax is paid.
- Keep thorough records: Maintain detailed records of your rental income, expenses, and any correspondence with HMRC. This will help you accurately complete your tax returns and provide evidence if HMRC queries your tax affairs.
We also highly recommend you seek professional advice early!
Tax laws can be complex, and professional guidance ensures that you remain compliant while optimising your tax position.
Your adviser will help you in preparing in advance and understanding the requirements of becoming a non-resident landlord before you make any purchases.
They’ll also be able to help you in other aspects of your tax planning such as understanding residency requirements and the implications of UK Inheritance and Capital Gains Tax.
Our goal is, in essence, to provide you with careful tax planning and guidance on your legal obligations to give you the best chance at a profitable venture in the UK property market.
We’re always available to help you in this endeavour so please don’t hesitate to reach out to one of our experts.
