Many buy-to-let landlords in the UK are often overwhelmed with confusion and fear whenever discussing or thinking about tax, as it can sometimes be difficult to know exactly what, how and when you need to pay. However, as an overseas investor and non-residential landlord in the UK, the situation is typically much more confusing.
Overseas investors may have even less knowledge about different tax policies in the UK, and may be unaware of what is required of them. With this in mind, we have put together a guide to help non-residential landlords to be more aware of UK property tax, and to help you understand more about your own tax responsibilities as an overseas investor in the UK.
A non-resident landlord is somebody that is not a resident of the UK, but owns UK property and receives rental income from that property over an agreed amount of time. A non-resident landlord, you should complete an NRL1 form which, once filed with the UK tax authorities, will ensure that your rental income is not subject to tax at source.
However, completion of this form does not mean that you are exempt from tax on your rental income, and this is a common misconception amongst new non-residential landlords. As well as this, many overseas investors believe that once they have registered to be considered as a non-resident landlord that they are no longer required to file annual tax returns – this is once again incorrect. You are indeed required to file your annual UK income tax return, and if you fail to do so, you will be met with significant penalties, as well as being demanded to pay the tax that you owe.
Tax for overseas investors
Almost nobody is exempt from UK income tax on the money that they generate through rental income, and so even as an overseas investor, you are subject to tax charges on your investment. As a non-resident landlord, tax charges include but are not limited to:
Income Tax – Applicable to certain sources of income, such as rental income, you are required to pay income tax for your UK property.
Inheritance Tax – Due on assets based within the UK that are held directly, as well as most types of UK residential property, even when held indirectly.
Stamp Duty Land Tax – Applied upon the purchase of your UK property, the rate at which you are charged is dependent on the price of your property.
Capital Gains Tax – This is payable against the profit that you make when selling your property, applying to most types of UK residential property, and it is expected to be extended to all UK property as of 1st April 2019.
If you employ the services of a letting agent, of who acts upon your behalf by collecting rent and paying the rent over to you, they are required to withhold 20% of the money, in order to pay it to HMRC. This 20% fee is for the income tax that you are liable for, and this process can only be change with the completion of the NRL1 form. Once the form is completed, both you and the agent will receive written confirmation from HMRC, outlining that the agent is no longer required to withhold any funds to be paid as income tax.
Tax charges for the sale of your property
Firstly, as a landlord, you will have a Principle Private Residence (PPR), of which is your main home. If you have more than one home, there are a number of rules that help to determine which property is your PPR, however nobody can have more than one PPR. Any profit that you make from the sale of your PPR is not subject to tax charges; however any profits made on other properties are indeed subject to tax charges.
Residents of the UK are required to pay Capital Gains Tax on any profit that they generate from the sale of their property regardless. However, non-resident landlords currently only have to pay Capital Gains Tax on the profit that they generate from the sale of most types of UK residential property.
Mark Burns is the managing director of property investment firm Hopwood House.