5th Feb 2015 10:06am | By Tony Shanks
Have you bravely made the ultimate ‘escape to another country’ move? Enjoying the sunshine? Did you decide to keep and rent out your UK property?
Well DON’T forget to complete your UK self-assessment tax return!
The self assessment tax return process can be difficult at the best of times –never mind when you are in a different time zone. But it is crucial that you understand how your position is governed by UK tax law. You have a responsibility as a landlord to declare any rental income and pay tax accordingly.
It’s not all bad news though, in many circumstances you could actually be owed a refund on the tax you have paid on your rental income and be able to reduce any tax you owe in the future.
It is useful here to define 3 particular terms as they apply to a UK Non-Resident Landlord.
1. Non-resident landlord – an individual who owns any property in the UK which is rented to another person while they live in another country.
2. Non-resident – someone whose “usual place of abode” is in another country for a minimum of 6 months.
3. Letting agent – someone who resides in Britain and is employed by a non-resident landlord to manage and care for their property in their absence. They can also collect rental income and send it to the relevant Non-Resident Landlord’s account.
Do I need to complete a tax return?
The quick answer is yes in the vast majority of cases. All your rental income has to be declared each tax year on a Self Assessment tax return.
How do I pay tax on my rental income?
There are 2 ways that you can pay your taxes on your property rental income as an individual. It depends on whether you are accepted on to the Non-Resident landlord scheme and your level of rental income.
1. Tax deducted from rent at the point of collection.
- Letting agents can take off the basic rate of tax from rental payments, alongside their expenses. They will then give you an end of year certificate (NRL6) to show how much tax has been deducted overall.
- Tenants can do this tax deduction themselves if you have no letting agent and their rent is more than £100 per week.
Paying tax on your rental income in this way does not exempt you from filling in a tax return.
2. Tax paid by submitting a Self-Assessment tax return.
Generally a Self-Assessment tax return will always have to be completed. If you owe tax on your rental income it will normally have to be paid in one payment.
Non-Resident Landlord Scheme
OK, let’s look at this in more detail. The Non-Resident Landlord Scheme was established by HMRC to allow UK expatriates to avoid paying tax on income from UK property rentals. It is an excellent way to save on your UK tax bill!
You have to submit an application to HMRC to see if they will allow you to join this scheme. Form NRL1 supplies them with all the information they need to make a judgement about your status. They also take into consideration your tax record history, such as meeting deadlines, and that current payments have been made.
If you are approved, you will probably still need to submit a Self-Assessment tax return declaring your rental income.
What happens when I am approved to join the Non-Resident Landlord Scheme?
Congratulations – let the money saving begin!
HMRC will confirm your new status to you and your letting agent. You are now entitled to receive your rental income without a tax deduction first being made.
If you are sent a tax return by HMRC, then you need to send it in declaring your rental income. On some occasions, HMRC will tell you that you no longer need to complete a self-assessment tax return.
What if I own the property with someone else?
Each owner must apply for the Non-Resident Landlord Scheme themselves with individual NRL1 applications.
I’ve been getting tax deducted from my rental income for years! Will I see any of that again?
Yes, and it can be backdated for up to 4 years. This is NOT an automatic consequence of becoming part of the NRL Scheme, a tax rebate will only be repaid when you complete your Self Assessment tax return.
Make sure you claim your expenses
You can claim reliefs and allowances which will reduce your tax bill. Expenses like repairs and mortgage interest and even accountancy fees are common examples.
You can also carry forward any losses and set them against future profits.
In addition the amount of capital gains you need to pay if you sell a property can be reduced if you have expenses that are classed as capital expenditure like a new bathroom.
If you don’t declare these expenses you won’t get the benefit of reducing the amount of tax you owe.
Word of caution
You cannot use HMRC’s Self-Assessment online services to declare your rental income if you are a non resident. The ‘residence’ section can only be filled in by using commercial software or on a paper tax return and sent to HMRC by post. Late penalties do apply if submitted late.
Tax and being a landlord is a big subject, meaning we've only covered some of the basics.
Depending on your individual circumstances your tax affairs can become complicated and getting professional help is usually very cost effective.
It’s very important to ensure you are meeting the tax office’s requirements of a landlord. Keeping to the deadlines and being compliant will give you peace of mind and keep the tax man happy.
Having a property business is a great way of earning income and securing your future, but don't forget the tax bit - it's always going to be there.
This guide was written by Tony Shanks from TaxRebateServices.co.uk experts in helping UK Non Resident Landlords from all over the world.