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UK Tax Guide on rental income for non-residents
Any income from UK rental properties is taxed, whether you live in the UK or abroad. This article guides you through the UK tax laws on rental income for non-resident landlords and how they can affect you.
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Who pays UK tax on rental income?
Anybody renting a property in the UK must pay income tax, including non-residents. You are classified as a non-resident landlord if you live abroad for six months or more per tax year, even if you are considered a UK resident for other tax purposes or a UK citizen. You can check your UK residence status here. This regulation affects both individuals and companies or trusts. Companies whose main office is located outside the UK or that are incorporated abroad need to pay tax on their rental income from UK properties.
How much UK tax do non-residents pay on rental income?
Tax on rental income is 20%, the same as a basic-rate Income Tax. You can deduct any allowable expenses, such as letting agents’ fees, accountants’ fees, maintenance or repair costs, utility bills, and Council Tax (provided you pay for these costs yourself and not your tenant.) If you are a UK citizen or citizen of a qualifying country, you can use your UK Personal Allowance (£12,570) to set against your UK rental income. However, if you have other income in excess of £12,570, you won’t be able to claim this. The UK government also offers a tax exemption of up to £1,000 per year instead of claiming actual expenses, this is beneficial where actual expenses are less than £1,000.
Exemptions of UK rental income tax
You don’t have to pay tax if you make £1000 or less per tax year on renting property. If you make between £1,000 and £2,500, you should contact HMRC. You must fill out your Self-Assessment form and follow the guide below if your property income exceeds £2,500 per tax year.
How to pay your rental income tax
Your rental income tax can be deducted in two ways: either you receive your gross income and pay the tax directly to HMRC, or your letting agent or tenants deduct this tax from your gross income before you receive the rent payment.
– Letting agents or tenants pay beforehand
Under the Non-Resident Landlord Scheme (NRLS), the UK letting agents are legally obliged to withhold the basic-rate tax on your rent payments before reaching you. If you don’t have a letting agent, the tenants must deduct this tax and pay it to HMRC. Both tenants and letting agents must pay this tax to HMRC every three months. Note that your tenant can only deduct tax from their rent if they pay over £100 weekly.
– Landlord receives gross income and pays tax afterward
You can choose to do it yourself too. In this case, you must fill out an NRL1 form and send it online or post it to HMRC. For this, you need to create your own Government Gateway account, and once your application is approved, you must keep your Tax Returns updated. Your application for an NRL1 may be rejected if you have outstanding tax returns or payments. If more than one person owns the property, each non-resident landlord must fill in their NRL1 and pay tax for their share.
Regardless of how you choose to pay your rental income tax, you must fill out a Self-Assessment tax return form. If your tenants or agent have paid your tax to HMRC, this information should be detailed in the form so you can offset it against your tax liability. The deadline for submitting your tax return is the 31st of October 2022 for paper forms and the 31st of January 2023 for online forms (for the tax year 21/22*).
The UK rental income tax laws for non-residents aren’t always straightforward – it is crucial to be aware of how much tax you should pay and how to pay it to avoid falling into delayed payments and penalties.
It is always recommended to take advice from a professional accountant as every individual’s tax liability is based on their own circumstances.
* Tax year is 6 Apr 2021 to 5 Apr 2022
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