How Do Overseas Landlords Apply for Tax Exemptions?
The Non-Resident Landlord Scheme (NRLS) applies to you if you are a non-resident landlord or a tenant of a landlord who does not live in the UK. You may also be required to meet certain obligations under the NRLS as a letting agent if you manage a UK property on behalf of somebody who lives overseas.
Just over a year ago, letters were sent by HMRC to tenants of properties that they believed to be owned by overseas companies or trusts. This correspondence highlighted the obligations of the tenants under the NRLS.
What is the Non-Resident Landlord Scheme?
The Non-Resident Landlord Scheme is designed to collect tax on the rental income earned from UK properties owned by landlords who do not reside in the UK. It has obligations for either the letting agent managing the property or the tenants. If you live in a different country but earn income from letting out a property that you own in the UK, this income will be subject to tax in the UK regardless of where you reside in the world and where the rent is paid. However, since pursuing those who live outside of the UK and do not comply with tax obligations can be difficult for HMRC, the purpose of NRLS is to collect tax on the rental income before the non-resident landlord receives the payment. This is done by the letting agent who will withhold tax on the rental income before it is paid to the landlord. If the property is not managed by a letting agent in the UK, the tenants must withhold the tax if they pay at least £100 per week in rent to the non-resident landlord.
Do I Qualify as an NRLS Non-Resident Landlord for Landlord Income Tax Purposes?
Being a non-resident landlord for NRLS purposes is not the same situation as being a landlord who is non-resident for more general UK tax purposes. If you make rental income in the UK, you will be classed as a non-resident landlord if you usually live outside of the UK. For somebody to be regarded by HMRC as a non-resident landlord, you will need to have been living outside of the UK for a period of six months or longer. As a result, it is possible to be classed as a non-resident landlord for NRLS purposes but remain a UK resident for tax purposes, for example, if you spend six months or more outside of the UK for work or family purposes.
What are Non-Resident Landlord Scheme Obligations?
The NRLS does not impose any obligations specifically on non-resident landlords themselves unless you register to receive your rental income paid without deduction of tax at source. If you own and rent out a UK property, you are usually obliged to file a UK self-assessment tax return, from which you can deduct any tax paid under the NRLS.
There are several factors that may allow you to register to be paid your rental income without any tax being withheld by the tenant or letting agent under the NRLS. You will be able to do this if you have never had any tax obligations in the UK or if your total taxable income for the year is less than the personal allowance for that year, or there is another reason why you do not expect to be liable to pay tax in the UK for the year that the application is made. In this case, you would simply be expected to report your rental income and expenses with a UK Self-Assessment tax return as normal.
How to Apply to Receive Gross Rental Income under the No-Resident Landlord Scheme:
You can apply to be paid gross rental income rather than having tax dedicated at the source either online or via post using form NRL1. If you are renting out a property that is owned jointly, each non-resident landlord will be required to make a separate application for their share of the rental income. Bear in mind that registering does not mean that you will not need to pay UK tax on the income and you will be responsible for settling any tax liability when you file a self-assessment tax return.
Landlord Income Tax in Your Home Country:
You should also check the circumstances regarding paying tax in the UK in the country that you are currently residing in. If you are a resident, it may be the case that your overall income in that country is also taxable. You can check whether you are entitled to any double tax relief if you are liable to pay tax both in the UK and in the country where you normally reside. The UK has double taxation agreements with many countries to ensure that people do not need to pay tax twice on the same income. These agreements are in place to override the domestic law in both countries and may allow a set-off of tax paid in one country against tax due in the other.
How do Overseas Landlords Apply for Tax Exemptions?
Are you a landlord with one or more properties to rent in London and living abroad for a period exceeding six months? Then, for tax purposes, you are classified as a ‘non-resident’ landlord. This article explains ‘How Do Overseas Landlords Apply for Tax Exemptions”.
The income you receive from renting your home is taxable in the United Kingdom, that is, rent is not exempt from UK Income Tax. You can pick one of two ways to be taxed:
1. Having your tenant or letting agent deduct tax at source
Letting agents and tenants must make an annual return to HM Revenue & Customs (HMRC), declaring respectively how much rent they have paid to or collected for the landlord (you).
Both are required to register with HMRC’s Non-Resident Landlord Scheme within 30 days of starting tenancy.
Agents can file the NRL4i form while tenants can write to the following address:
HM Revenue and Customs
Charities, Savings and International Operations S0708
PO Box 203
2. Getting your rent in full and filing a self-assessment (SA) tax return
If you want to receive your rent in full without having tenants or agents deduct tax at source, you must complete the Self-Assessment Form. An online filing deadline of 31 January and a postal deadline of 31 October apply.
You will need to fill in the NRLi form, which you can access here. HMRC will consider details such as your duration of stay outside the UK, information on any properties rented out in the country, as well as your personal and contact information.
To reiterate, there is no tax exemption for overseas landlords. You will automatically qualify for self-assessment with HMRC after having lived abroad for six months.
As a non-resident landlord, you can offset the tax deducted from your UK rental income against your tax bill at the time of completing your self-assessment tax return. If the agent has deducted more tax than the applicable liability, you can claim the excess in repayment back to you.
Letting agents can deduct expenses when they determine that such amounts are reasonably allowable while computing the non-resident landlord’s rental profits. HMRC gives tenants and letting agents leeway in computations and does not impose a penalty on incorrect deductions.
Allowable expenses include:
– Maintenance and repair costs
– Cost of services such as gardeners and cleaners
– Council tax, water rates, electricity and gas bills, if paid by you
– Property management fees
For more information on tax obligations related to rental incomes earned in the UK and capital gains tax on properties for sale in London please give our sales team at Greater London Properties a call and we can provide you with some reliable contacts in the industry.
Greater London Properties are Central London’s largest independent estate agent specialising in residential sales, lettings and Property Management, call us today on 0207 734 4062 or go online to our website glp.co.uk.
Hopefully this answers your question “How Do Overseas Landlords Apply for Tax Exemptions”.