If you’re thinking about buying a property in the UK as a non-resident and renting it out to tenants, there are several things you will need to be aware of.
Put simply, a non-resident landlord is an individual who earns rental income from a UK property while residing abroad for over six months in a tax year.
However, the situation is more complex than it sounds, with numerous tax considerations to be aware of.
One key benefit of being a non-resident landlord is the potential tax relief in your home country, which can be influenced by double taxation agreements between the UK and that country. This is a significant reason many choose to invest in UK property.
Nevertheless, it’s always important to stay compliant with UK tax regulations to avoid penalties, as being a non-resident landlord can be burdened with tax challenges.
Tax implications
Even when you are a non-resident landlord, you are still required to pay UK Income Tax on any rental income you make from your property.
The Non-Resident Landlord (NRL) Scheme requires your letting agent or tenant to deduct basic rate tax from your rent before you receive it – this is then remitted to HM Revenue & Customs (HMRC) on your behalf.
However, you can apply to receive your rental income in full, without any tax deductions by submitting the NRL1 form to HMRC if you are an individual, or the NRL2 form if you are a company.
If this is approved, you will be responsible for calculating and paying your tax through Self-Assessment, rather than having it deducted at the source.
You must also file an annual UK tax return if you earn rental income from a UK property, which should include your total rental income, allowable expenses, and any tax already paid under the NRL Scheme.
You can offset various expenses against your rental income to reduce your tax liability, such as:
- Letting agent fees
- Maintenance costs
- Mortgage interest
However, we highly recommend consulting a qualified tax adviser for assistance, as incorrect calculations can result in financial penalties and fines.
Ensuring compliance with UK tax laws
As a non-resident landlord, there are many steps you will need to follow to maintain compliance with UK tax laws.
First, you will need to register with HMRC for the NRL scheme and inform them of your non-resident landlord status. Ensure that you have provided all the correct contact details so you don’t miss any communications that could lead to you facing penalties.
If you prefer handling your tax affairs through self-assessment, you can apply for approval to receive your rental income without any tax deductions. To do this, submit the appropriate NRL form.
To ensure that all of your income and expenses are reported accurately, and any owed tax is paid, you will need to file your UK tax return each year.
It’s best practice to keep thorough records of your rental income, expenses, and any communications with HMRC. This will aid in accurately completing your tax returns and supplying evidence if HMRC questions your tax matters.
Final thoughts
We would always recommend you seek professional guidance as early as possible.
Your adviser will assist you in preparing and understanding the requirements of becoming a non-resident landlord before making any property purchases.
They can also support you with other aspects of tax planning, such as understanding residency requirements and the implications of UK Inheritance and Capital Gains Tax.
