Tax Director at Ward Williams
Non-UK resident individuals face a UK tax charge on their UK source income only (and capital gains tax on the sale of residential dwellings situated in the UK – see below).
If an individual is eligible to claim the tax free personal allowance in the UK (by virtue of the terms of a Double Taxation Agreement or citizenship etc.), they pay income tax in the UK on the proportion of their income falling above the allowance (currently £11,500), subject to the disregarded income rules.
A non-UK resident individual may also be subject to tax on their UK income in their country of residence. If the jurisdiction where the individual resides has a Double Taxation Agreement with the UK, tax relief will be available to avoid being taxed twice on the same source of income (where no agreement exists, unilateral relief may be available).
A taxpayer will need to pay income tax on any rental income enjoyed from renting out property in the UK. If an individual resides overseas for more than 6 months per year, they will be deemed a non-resident landlord by HMRC, even though they may remain UK resident for tax purposes.
If a landlord usually resides outside of the UK, the letting agent (or tenant) has an obligation to act as a collecting agent and deduct tax from their property income under the ‘non-resident landlord scheme’. Such landlords can, however, apply to HMRC to have their rental income paid ‘gross’ i.e. without the deduction of tax at source. Such an application is made on HMRC form “NRL1i – non-resident landlord: application to have UK rental income without deduction of UK tax”. The application itself can be made online (https://www.gov.uk/government/publications/non-resident-landlord-application-to-receive-uk-rental-income-without-deduction-of-uk-tax-individuals-nrl1i). If the application is approved, HMRC will notify the letting agent that the rent can be paid across to the landlord without the deduction of tax at source.
Non-resident landlords who prefer to pay tax via self assessment should complete the application form NRL1i and disclose their income in the annual self assessment tax return. Alternatively, the landlord can receive their rental income with tax deducted at source (the agent will present the landlord with a certificate NRL6 at the end of the tax year setting out the tax withheld at source/paid over to HMRC).
If the rental income is below the personal allowance for the year, the non-resident landlord can claim a tax repayment by completing a UK tax return (under self assessment) or by filing a Form R43 (https://www.gov.uk/government/publications/income-tax-claim-to-personal-allowances-and-tax-repayment-by-an-individual-not-resident-in-the-uk-r43 ).
Ward Williams has a team that specialises in the needs of landlords. To find out more please visit our Property section
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