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Non-Resident Landlords

Please note that the information herein is of a general nature and you should not act or refrain from acting on it without professional advice on the specific facts of your case. No liability is accepted by the author or Sykes Anderson Perry Limited in respect of this article. This is a complex subject and the above is a basic outline only and is intended only as a general guide. Nothing herein constitutes financial advice.

Please note that the information herein is of a general nature and you should not act or refrain from acting on it without professional advice on the specific facts of your case. No liability is accepted by the author or Sykes Anderson Perry Limited in respect of this article. This is a complex subject and the above is a basic outline only and is intended only as a general guide. Nothing herein constitutes financial advice. Many individuals acquire UK investment properties without being aware of the UK income tax implications. They will often take the view that they are resident in another country so they should pay tax there. When they receive the first rental statement from the letting agent they may be shocked to see 20% taken off for income tax . This is because under UK Law, the UK letting agent, or if there is no letting agent, the tenant, is obliged to deduct basic rate tax (20%) from the rent they collect for, or pay to, a non-UK resident landlord. It is though possible to apply to the UK tax authorities (HMRC) to receive this income gross under the Non-Resident Landlord Scheme.

It is though possible to apply to the UK tax authorities (HMRC) to receive this income gross under the Non-Resident Landlord Scheme.

One point to bear in mind is that even if the agent deducts the 20% tax, you are still obliged to file a tax return each year. That obligation applies regardless of whether you receive the rental gross or with the tax deducted.

As you would expect, your income tax is only due on the profit you make on the rent. That means you can deduct expenditure which you incur for the rental business. This will include repairs to the property but not major one-off capital improvements which are deductible when assessing the capital gain. It will also include mortgage interest (although that may be restricted in certain circumstances).

When the agent is calculating their 20% deduction, they do not take into account all the expenditure you have incurred. They can only deduct expenses which they have paid on behalf of the landlord. Some landlords may also be entitled to a tax-free allowance which will not be taken into account by the agent. This means their deduction will often be higher than the tax you need to pay. This can result in having to reclaim overpaid tax from HMRC which can be time consuming.

Generally landlords will prefer to have the gross income to improve cashflow during the course of the year. There is no downside to this as a tax return will have to be filed in any case.

There is a lot to consider when you are going to be in receipt of UK rental income. In many cases it will be preferable to acquire via a company although this depends on all of your circumstances. We can advise on the options available as well as assist in respect of the non-resident landlord registration.

October 2018

Graeme Perry