Non-resident landlords and paying UK tax on rental income

Some five and a half million British people live permanently outside the UK. About a third of them call Australia or New Zealand home, while more than a quarter live in the US or Canada, with…

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Last Updated: 23rd August 2023

Some five and a half million British people live permanently outside the UK. About a third of them call Australia or New Zealand home, while more than a quarter live in the US or Canada, with slightly fewer living elsewhere in Europe. In addition, for various reasons, each year, some live outside the UK for up to three months, six months or more.

Many Brits who live overseas some or all of the time continue to own UK property, the rent from which can provide some or all of the income they need to support themselves while living in another country.

This rental income is subject to UK tax rules (as are UK wages, private pension income and savings interest), while making a profit (a “gain”) after selling property or land in the UK can also leave them owing Capital Gains Tax in the UK.

Need to know! If the overseas country in which you live taxes your UK income, you may be able to claim tax relief in the UK to avoid being taxed twice – but only if that country has a “double-taxation agreement” with the UK.

What is the Non-Resident Landlord Scheme?

British people who live abroad for six months or more a year and rent out property in the UK are classed by HMRC as “non-resident landlords” – whether they’re a UK resident for tax purposes or not.

Under the Non-Resident Landlord Scheme (NRLS – which was introduced in 1996 to ensure that UK Income Tax is paid on UK rental income), landlords, tenants and letting agents must observe strict rules if they are to avoid costly fines.

The NRLS places a legal duty on the tenant or letting agent to deduct and hold onto tax before any rent is paid to a landlord living overseas. They must then pay this money to HMRC every three months.

When the landlord living overseas completes their UK Self Assessment tax return, the tax withheld by their tenant or letting agent can be claimed as a deduction against the landlord’s UK tax liability. Non-resident landlords may be able to apply to have their rent paid in full to them, so that they can pay the tax themselves via Self Assessment tax returns.

How much tax is due on rental income?

  • The first £1,000 of your income from property rental is your tax-free Property Allowance, but only if you do not have rental expenses to offset against your rental income. Income Tax payers also get a tax-free Personal Allowance of £12,570 a year (2022-23 and 2023-24 tax year).
  • Contact HMRC for advice on reporting if your property rental income is between £1,000 and £2,500 a year.
  • You must report your property rental income via a Self Assessment tax return if it is £2,500 to £9,999 after “allowable expenses” (see below) or £10,000 or more before allowable expenses.
  • You pay Income Tax on the profit you make from renting out your UK property or properties, after your allowable expenses are deducted. Allowable expenses are costs you incur to maintain and rent out your property. They can include fees you pay to a letting agent, lawyer or accountant, insurance, maintenance, repairs, cleaning and gardening costs, etc.
  • The Basic Rate of Income Tax (20%) is payable on income between £12,571 and £37,700. The Higher Rate of Income Tax (40%) is payable on income between £37,701 and £125,140. The Additional Rate of Income Tax (45%) is payable on income of more than £125,140.
  • Private landlords who aren’t running property rental businesses do not pay National Insurance on their rental income.  

Need to know! If you would prefer to pay tax on your rental income via Self Assessment, you apply by filling in form NRL1, which you send back to HMRC. Your application may be declined if your tax returns or payments are overdue.

Reporting your UK rental income to HMRC

In most cases, you must complete and file a Self Assessment tax return if you earn taxable income from renting out property in the UK.

You cannot do this online using the HMRC free service if you’re non-resident in the UK; instead you must fill in a Self Assessment tax return and an SA109 form and SA105 form and send them to HMRC by post or use commercial Self Assessment software that supports their online reporting. HMRC can tell you not to report rental income, for example, if you earn relatively little rental income.

Another option is to pay a UK-based tax professional to report your UK rental income to HMRC for you. If a letting agent or tenant already deducts tax before paying the remainder of the rent to you, you do not have to pay HMRC any more tax on your UK rental income.

If you fail to file your Self Assessment tax return before the deadline, you’re likely to have to pay a fine. The postal filing deadline is midnight 31 October, following the end of the tax year on 5 April.

Need to know! You need to complete the residence section form SA109 and the property section (form SA105) if you’re sending your Self Assessment tax return by post or filing online.

Why use GoSimpleTax?

GoSimpleTax offers private residential landlords like you an easier and quicker way to complete and file your Self Assessment tax return. It’s very easy to use, offers hints and tips, enables you to store receipts for your allowable expenses and is backed up by highly experienced support team. For added peace of mind, why not get your Self Assessment tax return checked by one of our experts? It can ensure that your tax return is error-free and that you’re minimising your tax bill by claiming all of your allowable expenses.

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Blog content is for information purposes and over time may become outdated, although we do strive to keep it current. It's written to help you understand your Tax's and is not to be relied upon as professional accounting, tax and legal advice due to differences in everyone's circumstances. For additional help please contact our support team or HMRC.

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