Non resident landlord services
Written by Ray Coman
A landlord, regardless of where resident, is subject to UK tax on income and gains from UK property. Many non-resident landlords are entitled to a UK personal allowance, which can eliminate income tax liability. However, a non-resident landlord is still required to file a UK Tax Return. On disposal of the property, the landlord must report any gain to HMRC within 60 days of completion. The disposal may give rise to capital gains tax.
What makes a person non-resident?
A non-resident’s liability to UK tax
Do non-residents have to complete a Tax Return even if there is no tax to pay?
Entitlement to the personal allowance
What makes a person non-resident?
Broadly, UK residency is determined by the number of days a person is physically present in the UK. A person is automatically non-resident who works outside the UK and is present in the UK for fewer than 91 days per year. A person is automatically resident if present for 183 days or more. If neither applies, the determining factors are explained in the separate guide on statutory residence.
In the tax year of departure or arrival, split-year treatment may apply where the individual leaves for a contract of work lasting at least a complete tax year. This limits UK tax on worldwide income to the UK-part of that year. Further information is available in the report on statutory residence.
A non-resident’s liability to UK tax
A non-resident is not liable to UK tax on most income. Any income arising outside the UK is outside the scope of UK tax. Investment income, such as bank interest and savings, is disregarded. Banks no longer deduct tax at source following the introduction of the savings allowance in April 2016.
For non-residents, most UK pensions (both State and private) are not usually taxable in the UK under double-taxation agreements. Certain government, local authority and civil-service pensions remain taxable here.
Coman & Co can help complete the form required to prevent the deduction of tax at source on pensions when a person leaves the UK (known as Form DT, which varies by country).
If tax has been deducted at source that is not taxable in the UK and cannot be recovered by the end of the tax year, a Tax Return can serve as a fallback. Even if a Tax Return is no longer possible because a claim deadline has passed, some relief may still be available in the recipient country. Coman & Co cannot advise on non-UK tax but note that UK tax deducted at source can often reduce foreign tax on the same income.
Profits of a self-employed person not resident in the UK are not liable to UK tax. Employment earnings are liable to UK tax if the work is performed in the UK (ITEPA 2003 s.27). A UK employer must operate PAYE if the work benefits UK operations. A work day of three hours or more is counted as a UK day for this purpose.
In summary, most non-residents will only be liable to UK tax on UK rental income.
Do non-residents have to complete a Tax Return even if there is no tax to pay?
Even where the personal allowance eliminates tax liability, a Tax Return is still required. This is because the residency questionnaire within the Return confirms non-UK residence, the basis for any personal allowance claim and the relevant country code.
To join the Non-Resident Landlord (NRL) Scheme, tax affairs must be up to date. Approval can be withdrawn for non-compliance. The Let Property Campaign is suitable for non-residents who need to bring their affairs up to date without unnecessary penalties. Penalties are lower for a voluntary disclosure, that is, one not prompted by an HMRC enquiry into rental profits.
Entitlement to the personal allowance
Many non-resident landlords are entitled to a UK personal allowance, including UK nationals, EU citizens and residents of many other countries. HMRC has confirmed that EU citizens remain eligible post-Brexit. Nationality is determined by the holding of a valid passport.
Certain jurisdictions (such as the USA and China) do not provide a personal allowance under their treaty with the UK. Low-tax jurisdictions (so-called tax havens) rarely confer eligibility.
Liability to local taxes
For a non-resident landlord, UK rental profits will usually be regarded as overseas income in that person’s country of residence. It is therefore possible that the same income is taxable locally. Any UK tax suffered at source may be available as a credit against local tax.
Coman & Co can only advise on a person’s liability to UK tax. The non-resident should seek further advice from a suitable local expert about their liability to tax on UK rental income.
Withholding of tax at source
A non-resident landlord not in the NRL Scheme will have tax deducted at source at the basic rate (20% at the time of writing). Letting agents are responsible for deducting and paying this tax to HMRC. In rare cases without an agent, the tenant is required to operate the deduction.
HMRC regard an individual as a non-resident landlord if abroad for more than six months a year, even if still UK resident for tax purposes. Generally, being non-tax-resident is harder to achieve, and simply being outside the UK for six months may not be enough. For instance, someone with a permanent base and family ties who spends 120 to 180 days a year in the UK might be UK-resident but nonetheless needs to join the NRL Scheme to prevent tax being withheld on UK rental income.
Non-resident Landlord Scheme
Tax withheld at source is credited against any liability. For landlords entitled to a personal allowance, this usually results in a refund, since tax is withheld at 20% while profits below the allowance are untaxed.
On approval for the NRL Scheme, rents may be received gross, offering a cash-flow advantage. In most cases, the letting agent completes the NRL1 form because agents must hold HMRC approval before paying rents gross. Each agent has a unique HMRC reference number, so a new NRL1 is often filed when a landlord changes agents. If the agent does not handle the form —or if no agent is used — Coman & Co can complete the form for a modest additional fee.
Non-resident companies
A non-resident company receiving rental income from UK property is subject to Corporation Tax rather than Income Tax. The change took effect from 6 April 2020. Coman & Co prepare the necessary accounts, Company Tax Returns and Corporation Tax calculations for HMRC.
Since 31 January 2023 most non-resident companies owning UK property must also be registered as Overseas Entities with Companies House. Coman & Co advise on this and can assist with de-enveloping where appropriate.
From 1 April 2023, the main Corporation Tax rate (25% at the time of writing) applies to non-resident companies. Recent changes such as ATED and Corporation Tax on non-residents have reduced the appeal of corporate property holding structures.
Capital gains tax
Since 6 April 2015 all non-residents have been liable to UK Capital Gains Tax (NRCGT) on UK property. It is possible to use the April 2015 market value instead of original cost for residential property. For commercial property the rebasing date is April 2019.
A non-resident disposing of UK property must report the transaction to HMRC within 60 days of completion and pay any tax due within the same period (previously 30 days). Rates depend on the type of property and the taxpayer’s status — individuals apply residential rates; companies apply Corporation Tax rates.
Partial relief (private residence relief or final-period exemption) may reduce the gain where the property was once a main home. A pitfall arises where a property is sold after returning to the UK, as rebasing benefits may then be lost.
Coman & Co calculate the gain, apply rebasing, and ensure the 60-day return is filed correctly.
Tax deductible expenses
Taxable rental profit is calculated after deducting allowable expenses. Common examples include letting agency fees, accountancy fees, service charges, repairs and buildings insurance. Travel costs are deductible where wholly and exclusively for the property business.
Mortgage interest relief is restricted to a basic-rate (20%) tax reducer rather than a deduction from profits. Where rental profits fall below the personal allowance, it can be quicker to claim the £1,000 property allowance instead.
Coman & Co can determine which approach — actual expenses or the property allowance — is more beneficial each year.
Our service
Coman & Co are specialist tax advisers for non-resident landlords, providing a complete UK compliance and advisory service including:
- Applications for gross payment status under the NRL Scheme
- Preparation and filing of the annual UK Tax Return
- Advice on HMRC regulations and ways to minimise tax while remaining compliant
- Confirmation of UK residency status for tax purposes
- Guidance on Capital Gains Tax and Inheritance Tax implications of being non-resident
- Advice on joint ownership (for example, between spouses)
- Representation as agent in correspondence with HMRC
We work with clients worldwide and manage all compliance remotely.
VAT on accountancy services
VAT on accountancy fees to overseas landlords is outside the scope of UK VAT. HMRC confirm this in VATPOSS07700, which covers professional services supplied to non-UK clients. Advisory and tax compliance services are similarly outside the scope under section 7.5 of VAT Notice 741A.
Accordingly, Coman & Co do not charge VAT to overseas landlords.
Comments
I am a foreign individual landlord and am just wondering if VAT is payable on the services provided by the UK property manager for a residential property? (I’m conscious that VAT isn’t levied on accountancy services as you mentioned).
James
It is your letting agent that withholds the tax and pays it over to HMRC.
Please forward the non-resident scheme approval letter to your letting agent. Your letting agent are then obliged to stop withholding tax at source from your pay. Typically, in my experience the letting agent will then refund any tax withheld at source since the start of the tax year.
Therefore the sooner you send the approval letter to your letting agent the sooner you should obtain your Tax Return.
Any amount of tax that you have not been refunded by the year end can be included in your Tax Return.
You are required to file a Tax Return every year. UK tax on rental profits is 20%. This applies for profits up to the higher rate tax threshold (£50,000 at the time of writing.) The 20% deduction at source takes place if you are not registered for the non-resident landlord scheme. I would therefore advise that you complete an NRL1 form. Unless you are behind on your taxes HMRC will approve you to join the non-resident landlord scheme. Give your reference number to your letting agent who will then stop deducting taxes at source.
The 20% is applied to gross rents. However, typically you can deduct costs from taxable rental profits such as letting agent fees, repairs and building insurance. There is also tax relief for mortgage interest payments.
https://comanandco.co.uk/taxation-of-interest-on-rental-property
Therefore even if you do not join the non-resident landlord scheme, you will quite likely be entitled to a tax refund when you file a Return.
Many non-residents are entitled to a UK personal allowance. This would further exempt you from tax and increase any repayment of tax withheld at source. https://comanandco.co.uk/uk-personal-allowance-for-non-residents
I would like to check if there is any way to claim back the taxs hold by HMRC as I am NON RESIDENT LAND LORD. HMRC took around 20 per cent of the rent paid to me by my tenant. I applied for an exception but it arrived after the agency sent the money to HMRC.
Thanks
I would be please to provide you with a quotation. Please email: enquiries
Ray Coman, FCCA, CTA, Director
Coman & Co. Ltd.
Good morning.
I am buying a buy-to-let property in the UK and the transaction will be completed on the early December this year. Thus, I am looking for an experienced tax accountant to help with tax advice and handle the UK Tax Return and related issues. Grateful if your company would provide me a quotation on the non-resident landlord services stating what services included.
Thank you for your time and look forward to hearing from you.
Cheers,
Wavy