Last Updated on November 8, 2024 by Rositsa Baneva
With the weaker pound, and the housing market experiencing strong demand, foreign investors are presented with an opportunity to acquire UK property at a more affordable cost, making this an optimal time for them to invest in the UK real estate market.
Foreigners with property there must understand the UK property taxes for non-residents. The UK has a complex tax system, and failure to comply with regulations can lead to significant fines and penalties.
In this article, we will provide top tax tips for foreigners who own property in the UK, to help you stay compliant and make the most of your investment.
Understand your residency for tax purposes in the UK
First and foremost, it’s important to understand the difference between being a non-resident and a resident for tax purposes.
According to HM Revenue and Customs (HMRC), you are considered a non-resident landlord if you live abroad for more than six months a year, even if you’re a UK resident for tax purposes.
Register for UK Self-Assessment and don’t forget about your UK tax return filing requirement
Paying tax on rental income and filing a Self-Assessment tax return annually is mandatory if you receive taxable UK rental income.
However, if you are not in the UK, you are unable to complete this online through HMRC. Instead, you must use commercial Self-Assessment software that allows online submissions from outside the UK.
You can also engage a UK tax advisor to submit your rental income tax return to HMRC on your behalf and deal with the entire process.
You have a tax filing requirement in the UK, even though you might file a tax return in your home country as well.
Be aware of Capital Gains Tax for Non-UK Residents
Capital gains tax (CGT) is a tax imposed on any financial gain or profit made from the sale or disposal of an asset (land, property).
If you are a non-resident selling UK property, you need to know that you are subject to capital gains tax, which is charged on gains from sales made after 5 April 2015.
Since the new regulations came into force in April 2015, if you are a non-resident and sell a residential property in the UK, you are still required to notify HMRC even if you don’t have capital gains to declare. It’s the same if you have sold or are selling your primary residence.
Even if there is no capital gains tax due, failure to submit an accurate capital gains tax return to the HMRC is likely to incur a penalty.
Any non-resident capital gains tax in the UK that is owed must be reported and paid within:
- 60 days following the sale of the UK property or land – If the completion date was on or after October 27, 2021
- 30 days after selling the UK house or land – If the completion date fell between April 6, 2020, and October 26, 2021
Individuals will be subject to an 18% CGT charge for basic rate taxpayers and 28% for higher and additional rate taxpayers, based on their UK income levels for the relevant tax year. They will also be eligible for the CGT annual exemption.
As there are many factors to consider when it comes to taxation, expats should seek professional financial guidance.
Consider the UK non-resident landlord scheme
As a non-UK resident landlord, if you spend more than six months of a tax year living outside the UK, you will have to join the Non-Resident Landlord Scheme (NRL scheme).
This means that any tax owed on rental income must be paid by letting agents, tenants, or anyone else finding tenants on your behalf before the rent is paid to the landlord unless they have received written instruction from HM Revenue & Customs (HMRC) stating otherwise.
Failure to comply with this requirement can result in fines.
For non-resident landlords, any tax withheld by tenants or letting agents on rental income can be claimed as a deduction against their UK tax liability when they file a Self-Assessment Tax Return.
However, landlords who meet certain qualifications can register with the Non-Resident Landlord Scheme (NRLS) and request that their rent be paid in full. This way, they will be paying tax on rental income through their rental income tax return.
Claim your UK tax-free Property Allowance
If you earn less than £1,000 per year from letting out a property, you do not need to notify HMRC. So, you have a £1,000 tax-free allowance.
If your rental property income is between £1,000 and £2,500 per year, you should contact HMRC, and you’ll need to report the income on a Self-Assessment tax return if you earn:
- £2,500 to £9,999 after allowable expenses
- More than £10,000 before allowable expenses
Each co-owner of a rental property in the UK is entitled to the Property Allowance, which they can deduct from their respective portions of the gross rental revenue. You cannot claim allowable expenses if you claim the Property Allowance.
Keep accurate records
Keep detailed records of all income and expenses related to your property, as this will help you calculate your rental income and any allowable expenses when it comes time to file your tax return.
Claim all allowable expenses
When it comes to paying tax on rental income, you can lower your tax bill by deducting “allowable expenses” for items you purchase to maintain and rent out your home.
Letting agent, legal, and accounting fees, as well as costs for maintenance, repairs, cleaning, and gardening, are all considered allowable expenses. For the replacement of couches, mattresses, carpets, curtains, white goods, sofas, crockery, cutlery, and other domestic items in a furnished or partially furnished rental property, you may be eligible for Replacement Domestic Items relief.
Our tax experts can review your circumstances and help you claim all allowable expenses.
Don’t miss the UK tax deadline
The online deadline for submitting your Self-Assessment tax return and paying your bill is midnight on 31 January 2023, for income generated during the 6 April 2021 and 6 April 2022 tax years.
If you choose to file a paper tax return rather than an online one, the Self-Assessment deadline for the self-employed tax year is 31 October. Paper filing will soon be eliminated.
Payments made after their due date may incur hefty interest charges, so it’s crucial to pay on time.
Keep in mind the impact of Brexit on taxes
Since the UK has left the EU, double tax treaties between UK and EU countries may have changed and it’s essential to keep an eye on this aspect.
Both the country in which you reside and the UK may impose taxes on your income earned in the UK.
If your country of residence and the UK have a “double-taxation agreement,” you might not be required to pay twice. You can apply for:
- partial or complete relief before taxation,
- or reimbursement after taxation
Each double-taxation agreement outlines:
- in which country you should pay your taxes
- which is the country you can apply for tax relief
- how much relief you can get
Seek professional tax help
Even the most experienced landlord may be afraid of taxes.
We understand the disappointment that can arise from receiving a higher than expected tax bill and we can help you minimize it.
UK property tax for non-residents can be complex, and it’s a good idea to seek advice from a qualified tax professional.
Our property tax advisors work closely with non-resident landlords and will help you file your landlord tax return if you earn income from a rental property in the UK.
We will prevent your tax bill from getting out of control by applying every double-taxation agreement, tax relief, and allowable expenses you are entitled to. We will also make sure that you meet the relevant filing deadlines and ensure you’re fully tax compliant.
What’s more, we offer a more affordable service than your local accountant!
Check out our UK Property Tax Return Services for landlords
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If you have any questions that we did not answer, you can request a free callback from our tax experts.