In the wake of the Brexit referendum, many of us have been left wondering what the future holds for the 1.2 million Britons living abroad in other EU countries. Of those who are tax-registered in the UK, many have held onto UK property. This makes them non-resident landlords, or overseas landlords.
Whether you currently work abroad or are planning to retire overseas, keeping a property back in the UK can give you a much-needed regular income. It can also make a great nest egg and offer some security, should you decide to return to the UK.
However, there are certain regulations relating to non-resident landlords that you need to be aware of. One of the most significant being non-resident landlord tax.
Any landlord living abroad for more than six months of the year must pay income tax on their UK rental property. This is collected through the non-resident landlord scheme (NRLS). Your letting agent or tenant (if they pay you more than £100 per week) can pay the tax on your behalf, then it’ll be deducted from the rent due to you. You can offset this against your tax bill at the end of the financial year, when you complete your non-resident landlord tax return.
If it’s your tenant who’s paying this tax, they’ll need to register with HMRC and complete an annual report; even if HMRC has instructed them that no tax will be deducted and the tenant deals with a UK-based property manager in your absence.
If you’re abroad for at least six months of the year, it’s wise to ask a letting agent , solicitor or other trusted individual to manage your UK property and tax. Whoever you choose must do so within the guidelines of the NRLS, regardless of how much rent they collect. If HMRC tells them no tax is to be deducted, they may still need to register and complete an annual report.
Don’t forget, rental income doesn’t just mean rent. It can also include money received on land, the use of furniture within a rented property and use of land for sporting rights, to name a few.
There are around 175,000 non-UK resident taxpayers earning rental income. UK non-resident landlords benefit from a tax-free personal allowance, so you’re exempt from paying tax if your earnings fall below a certain amount.
Non-resident landlords are usually taxed on their UK rental income in their country of residence as well as the UK, but if your rental income is below the personal allowance, you might be able to claim double taxation relief. Without the NRLS, non-resident landlords would pay UK tax on their income, then would need to claim relief in their country of residence.
It remains to be seen whether the Brexit vote will result in any changes to the personal allowance currently granted to non-resident landlords.
Want to sell your UK rental property? As a non-resident landlord, you’ll need to pay Capital Gains Tax (CGT) on any profit you make from the sale.
How much you’ll pay depends on the value of your property and your income. If your profit is below the personal allowance, you won’t pay tax. Beyond this, basic rate taxpayers pay CGT at 10% while those on higher rates of income pay 20%. You’ll be able to deduct certain expenses – such as stamp duty and legal and estate agency fees – once you’ve sold your property.
Protecting your property investment while you’re abroad is vital. The right level of landlord insurance will help by covering you for unexpected costs, such as loss of rent. Find out more about our buy-to-let landlord insurance and what it includes.