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Overseas Landlords Tax Guide

This is a brief tax guide to describe how rents and tax are handled in the situation where the landlord is resident overseas. It does not however attempt to cover the wider aspects of personal taxation. If you are unsure which forms you need or how to fill them in, then you are advised to seek further advice from your local tax office.

Will I need to pay tax?

All owners of property in the UK are required to pay tax on their letting income unless the income after allowable expenses is less than an individual’s personal allowances. However, special rules apply to the UK rental income of non-residential landlords (NRL) or landlords who live abroad (usually for more than a six month period).

Non-Resident Landlord Scheme

The NRL scheme operates for rental income paid on or after 6 April 1996 and replaces the old rules under Taxes Management Act 1970. If you want information about the earlier scheme, ask your Tax Officer.

If you let your property through an agent then the agent must operate the NRL Scheme and deduct tax from your rental income, unless they receive written notification to the contrary. In simple terms, the Agent will either:

1. If authorised by the Revenue, pay the rental income to their non-resident client gross, or

2. Deduct tax at the basic rate on net income subject to certain allowable expenses and deductions.

Administration

The NRL scheme is operated by the Revenue’s Financial Intermediaries and Claims Office (FICO). Non-Resident landlords can apply to FICO for approval to receive their rental income gross or with no tax deducted (an ‘approval’). If the application is successful, FICO will issue a notice and the agent will not be required to deduct tax.

Landlords with poor tax histories may be refused an approval, and in these cases agents will be obliged to continue to withhold tax at the current basic rate on their net rental income.

It is important to inform the Revenue if your tax situation changes (e.g. if you return to live in the UK) or if your letting agent changes.

How do I obtain an approval to receive rental income gross?

An approval will allow you to receive all rental income due without deductions to cover tax liabilities. The forms are available from FICO or your letting agent. You can apply for approval if:

1. Your UK tax affairs are up-to-date

2. You have never had any UK tax obligation or

3. You do not expect to be liable to UK tax

Many people are entitled to set personal allowances against their income. If your UK income after allowable expenses is less than your personal allowances, then you will not be liable for tax. Landlords and Agents will be notified simultaneously of decisions to grant or withdraw approval. Approvals can be cancelled by the Inland Revenue if returns are filed late or tax is not paid on time.

New Landlords

Where non-resident landlords qualify for approval to receive rental income gross, the landlord should apply for approval as soon as possible. Only tax deductions made in a particular quarter can be refunded by the agent.

What happens if a Landlord has no approval?

Your agent will be required to withhold and pay the tax due on your behalf if you are non-resident and if approval to receive gross rental income has not been received within 30 days of each quarter. Quarters end on:

Tax will be deducted at a basic rate as a percentage of the quarterly rental income taking in account only cash received and cash paid by the agent. Your agent will issue you with Certificates of tax paid which you should include with your tax return.

At the end of the tax year, you should still declare your letting income on your tax return in the normal way and you can reclaim repayment of any overpaid tax.

How is the tax calculated?

If required, the agent will calculate the tax each quarter for each non-resident landlord. The tax will be calculated at the basic rate on property income received in the quarter less allowable expenses.

Example:

Allowable expenses are those paid by the agent in the respective quarter. Expenses are allowable if they are incurred wholly and exclusively for the purpose of the rental of the property, and they are not of a capital nature. Thus, for example, any repairs to the property, water rates, insurance, management fees or other professional fees are allowable. However, letting agents cannot deduct expenses paid by the landlord nor any capital or personal allowances.

Non-resident landlords

The scheme applies to the UK rental income of persons whose usual place of abode is outside the UK (non-resident landlords). Landlords may be individuals, companies or trustees.

For tax purposes individuals will not be regarded as having a usual place of abode outside the UK, if they are temporarily living outside the UK for, say, six months or less.

Where property is let jointly be two or more landlords and one or more of them has a usual place of abode outside the UK, the scheme applies separately to the rental income of each non-resident.

HM Armed Forces and other Crown Servants

The Non Resident Landlords scheme applies to members of HM Armed Forces and other Crown Servants who have a usual place of abode outside the UK even though their employment duties, while performed overseas, are treated as performed in the UK for the purpose of charging their salaries to tax. These individuals were excluded from the old scheme under TMA 1970 for the taxation of rental income of non-resident landlords.

• Are You Ready to Let Your Property?

• FAQs

• Tips on Furniture & Decoration

• Gas & Electrical Safety Regulations

• Damp & Mould

• Overseas Landlords Tax Guide

• Our Ten Commandments for Letting Property

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