Income Tax for Non-residents investing in the UK residential property

Regardless of the landlord’s residential status income tax is charged on income from letting property situated in the UK and as per usual income and expenses should be taken into account and it’s important to keep a good record of all expenses.

Capital expenditure where an improvement is made to the property and not just repairs to the same standard is not deductible for income tax purposes, however those additional costs will be taken into account when calculating gains arising on disposal of the property.

Interest relief on loans taken out to acquire the property will be restricted to the basic rate of tax from April 2020 for private individual landlords.

Individuals are liable to a progressive rate of tax from 20% to 45%, however many non-resident landlords are entitled to claim personal allowance which gives an exemption from tax on the first £11,850 for the tax year 2018/19 if they are either citizen of the European Economic Area and certain common wealth countries.

Companies on the other hand pay a flat rate of 19% on their profits (this will fall to 17% by 2020) and are able to claim full mortgage interest relief.

Individual landlord would need to file a tax return at the end of the financial year and with profits of over £1,000 landlords would have to make payments on account in two instalments, first payment on the 31 January and the second payment on the 31 July following the end of the tax year and any final payments would be payable at 31 January when the next tax return is filed.

However, non-resident landlords need to apply for the above treatment using a form NRL1, otherwise they would be subject to much harsher collection regime. Managing agents must deduct and pay HMRC 20% from the rental income after expenses or if the property is let directly to the tenet, then the tenant must deduct tax at basic rate (20%) from the rent unless the rent is less than £100 per week and if the tax at source exceeds the actual tax liability then HMRC would make a repayment to the landlord when the landlord files a tax return.

Companies would need to file their accounts and pay their corporation tax 9 months and 1 day after the end of the company's accounting year end.

In the next post we will be discussing other taxes that non-resident landlords should watch out for such as Capital Gains Tax (CGT) and Inheritance Tax (IHT).

If you have any questions regarding your current investment portfolio or planning for the future please don't hesitate contact us on ​​[email protected].
​

Alex Bahamin ACCA MAAT

​About The Author;

Alex is a qualified chartered certified accountant, member of ACCA and AAT.

He is a property tax advisor, investor and has been helping landlords keep more of their wealth for themselves and their families.

With both technical expertise and personal experience of being a property investor himself, Alex can help other property investors save tax and structure their businesses in the most efficient way.