Expat landlords liable for UK income tax on rental profits

As the UK government tries every trick in the book to improve its vast deficit, its latest hit on expats is to attempt to charge income tax on UK rental properties, no matter where the owner lives.

Her Majesty’s Revenue and Customs department (HMRC) are proceeding on the premise that every expat with rented-out property in the UK is a resident for tax purposes. The department is not using the statutory residence test: rather, it’s basing its judgment on ‘usual place of abode’.

If an expat landlord lives overseas permanently, they are not considered a resident landlord, but if they live abroad for six months or less every year, they’re outside the revenue’s latest net. Those qualifying as non-resident landlords under this so-called test have two options as to how they pay tax on their profits.

The first is to have the tenant or letting agent (or friend or family member who collects the rent) withhold the tax due and pay it directly to the HRMC, although tenants paying under £100 per week are not obliged to withhold tax unless HMRC orders them to. The second alternative is to send a self-assessment return each year after collecting the full rental amounts.

The latter is the best method for non-resident landlords, as it’s easier to account for expenses such as repairs, insurance, mortgage interest and professional fees, all of which attract tax relief. There’s a snag, though for those who’d had enough of bureaucracy before they emigrated – they must join the Non-Resident Landlord Scheme (NRL).

The scheme demands that overseas landlords keep up to date with their tax returns and remittances; prove that they live outside the UK’s tax system and agree to file annual self-assessment returns on time. Renting out under a company created in an overseas location isn’t a way out of more form-filling, as such companies also fall under the NRL scheme.

• 
• 
• 
•