If you are a non-resident landlord, you will have some particular tax issues to beware of for your UK investment properties. Here are the top four current issues from our guest blogger Rob Durrant-Walker, who is a tax specialist with Garbutt & Elliott in their York and Leeds offices.
1) Register As A Non-Residential Landlord
The UK’s HM Revenue & Customs require your tenant or rental agent to deduct tax at source from your rents before they are paid to you. That can give you a cash flow headache unless you register with HMRC as a Non-Resident Landlord under their “NRL” scheme. You can then be paid your rents gross, as long as you pay any tax that is due through an annual UK tax return. Under the NRL scheme, you will be given an NRL number by HMRC once you register (it will look something like 904/NL123456). Redbrick Properties, and any other letting agents that you use, will need to give you their own “agents” NRL number so that HMRC can tie the two references together. HMRC will then write to your letting agent to give them permission to pay your rents to you gross of tax. I’d always recommend registering under the NRL scheme, and the scheme covers individual landlords and overseas companies with UK lets.
2) Submit An Annual Tax Return
Even if your costs cover your rental income, you still need to submit an annual tax return to HMRC showing your UK source income. That is the case whether you register under the NRL scheme or not. A tax return for the year ended 5 April 2015 will need to be submitted to HMRC no later than January 2016. Don’t leave it to the last minute, particularly if you still need to register with HMRC for tax returns as it will take them a few weeks to process your registration.
3) Inheritance Tax Planning
If you are also “non-domiciled” rather than just non-resident then you could also consider Inheritance Tax (IHT) planning opportunities. Depending on the value of your UK assets you could still be charged UK IHT if your UK source wealth is more than the IHT threshold of £325,000 on your death. If IHT is a potential issue for you, then there may be steps you can take to move your UK property out of IHT.
4) Capital Gains Tax
Finally, if you do sell a UK residential property, you need to be aware that gains are now subject to UK Capital Gains Tax from April 2015.
Planning should not be undertaken without individual advice from a tax specialist, and this should also include the impact of tax in your country of residence.
Rob is a Chartered Tax Adviser with Garbutt & Elliott LLP, with 23 years’ experience in tax including at the old Inland Revenue. He has a number of non-resident clients who invest in UK property lettings and Rob advises them on tax planning as well as completing their UK tax returns. Rob can be contacted at firstname.lastname@example.org, or on +44(0)1904 464100.