Owners of rental property in the UK, who are non-resident there, are liable to pay taxes and must apply for a UTR or Unique Taxpayer Reference.
Broadly, an individual is considered to be non-resident in the UK, if s/he does not spend 183 days or more in any tax year in the UK, does not spend more than 91 days on average in the UK over a 4 year period or does not have their primary residence there. That said however, residence is a matter of fact and HMRC does have the scope to look at all the circumstances of a taxpayer’s lifestyle in determining residence; it’s not simply a matter of meeting the day count although this is a common misconception.
Of particular concern for those who have been UK resident and who are seeking to shed their UK residence is the concept of a “clean break”. This concept was pivotal in the recent tax case Gaines-Cooper v HMRC which was decided against the taxpayer and again, this concept is dependent on a taxpayer’s individual circumstances. If you have any doubts you should seek professional advice.
The tax year in the UK runs from 6 April to the following 5 April and the return is due by 31 January of the following year.
An Irish resident landlord of UK property is taxed under what is referred to as the non resident landlord scheme or the NRLS.
Non-Resident Landlords Scheme (NRLS)
Although the scheme name implies that it applies only to non residents, the scheme actually applies based on the usual place of abode. It is therefore possible to be resident in the UK for tax purposes and still be within scope of the NRLS because the normal place of abode is outside the UK.
This is however a fairly rare circumstance. Where an individual is resident but within the NRLS, then the normal rates of UK tax apply i.e. 20% - 50% dependent on income levels.
In most cases however, Landlords within the NRLS are non resident for UK tax purposes and this article is directed at such taxpayers.
In the first instance and in the absence of an application t the contrary, the letting agent for the property, or in the absence of an agent, the tenant, are oblidged by Law to deduct basic rate tax (currently 20%) from the rent and pay it over to HMRC. Any tax so deducted and paid to HMRC is held as a tax credit against the Landlord’s final tax liability.
As mentioned above though, under the NRLS a Landlord can apply to HMRC to have their rental income received gross. Broadly the requirements to make this application are as follows:
their UK tax affairs are up to date
they have not had any UK tax obligations before they applied
they do not expect to be liable to UK Income Tax for the year inh which they apply
It should be noted that where a Landlord has successfully applied to receive rental income gross, this does not mean that the income is exempt from UK tax; it remains taxable and a UK Tax Return must be filed for each tax year in which they receive UK rental income
Non-Resident Landlord (NRL)
Irish resident landlords are liable to UK income tax on income from properties within the UK and must file a UK Tax Return.
Furnished Holiday Lettings (FHL) properties are treated differently from other properties for tax purposes. These are particularly useful for the astute property investor, as many of the tax benefits that a taxable trade enjoys are applied to such income (without actually being regarded as a trade). These include many allowable expenses, 50% capital allowances on furniture and equipment for year one (25% p.a. thereafter), loss relief against other income and not just rental income, lower 10% UK CGT rate on first £1m gain on disposal (entrepreneur’s relief) also can defer the payment of UK CGT by availing of rollover relief if the proceeds of sale are reinvested within 3 years. There is also a favourable scheme to encourage landlords to make their FHL environmentally friendly.
Landlords wishing to claim such status need to ensure that all properties under the claim qualify and meet all of the conditions. There are tax consequences where
Taxes payable when purchasing a property are as follows:
UK Stamp Duty/Land Tax is payable when you buy land/property. The tax depends on the cost of the property and the rates vary from 1% to 4%.
The VAT rate in the UK on the purchase of property is 20%. ( January 2011 )
Ongoing property taxes payable in the UK are as follows:
UK Personal Income Tax is payable by non resident Landlords in the UK on rental income less tax deductible expenditure at a rate of 20%.
UK Local Property taxes (Council Tax) apply in the UK and the liability falls on the tenant residing in the property. The tax is calculated on a daily basis and varies per region.
Other applicable taxes are as follows:
UK Capital Gains Tax is a territorial tax in that it is levied on UK residents only. As an Irish resident individual, you are exempt from UK CGT should you dispose of your UK investment property – therefore you will only be liable to Irish CGT of 20% of the actual gain, this is payable in Ireland (subject to the usual Irish CGT rules). You should note however, that there are anti-avoidance rules in place to prevent taxpayers realising capital gains on UK property while being temporarily non resident from the UK.
UK Inheritance & Gift Tax The UK split its Capital Transfer Tax into CGT and IHT many years ago. Unlike CGT, IHT is not a territorial tax. UK IHT is charged based on the common law concept of domicile. It is therefore very possible to be non resident for UK tax purposes but for your full estate to be subject to UK IHT – mostly this will apply to UK born taxpayers who have moved to Ireland/abroad but have not managed to establish an Irish/foreign domicile of choice. This is a very specialist area and if you are UK born or have substantial family links to the UK (i.e. your father was born in the UK and/or you lived in the UK for many years) you should seek professional advice.
In the typical case of an Irish born and domiciled taxpayer holding UK property, you should note that UK IHT is still chargeable on UK situs assets. If you hold the property directly then the property will be a UK situs asset and within the scope of UK IHT. There is basic planning which can however be put in place to mitigate this.
Property Tax International can organise the completion and filing of all necessary UK tax returns in addition to advising on your property tax obligations in your home country.
The information provided here is intended as a guide only. While Property Tax International Limited makes every effort to ensure that the information contained herein is accurate, we take no responsibility or liability for any inaccurate, delayed or incomplete information, nor for any actions taken in reliance thereon.
Property Tax International is a trading name of Taxback Returns which is part of the Taxback Group incorporating taxback.com providing financial services since 1996