An individual’s residence and domicile are vital to identifying what income is to be charged to tax and so is an important issue for Landlords to understand.
Property Taxation and Residency
Residence & Domicile are complex subjects and this section does not attempt to deal all areas but instead gives an overview of points relevant to landlords.
Residency, Domicile and Ordinary Residence
All UK residents must pay tax on their income wherever it arises unless they are non-domiciled. If you are a non-resident landlord you must pay UK income tax on your UK rental income.
You are UK resident in any year in which you spend more than 183 days in the UK.
You are resident if you are regularly in the UK for more than 91 days. HMRC consider each year and the average number of days spent in the UK over the last four years. (You may ignore some days spent in the UK, for example, dealing with family bereavement)
From 6th April 2008 each day that an individual is physically present in the UK at midnight will be counted as a UK day, therefore days of departure are not counted. Prior to 6th April 2008 both days of arrival in and departure from the UK were ignored.
You may be treated as being UK resident if you owned or leased accommodation in the UK for three years or more.
You are resident if, when you came to the UK, you intended to remain for two years or more.
You can be resident in another country at the same time as being resident in the UK
There are many tests for Domicile
There is no legal definition.
You cannot be without a domicile
You can only have one domicile at a time
Your existing domicile will continue until you can prove you have another one
You normally acquire your domicile of origin from your father, it need not be the country in which you were born
Your domicile of origin can be replaced by your domicile of choice. This will be the country in which you live if you can show that you intend to stay there.
Other factors in determining a domicile of choice will include your intentions, your business interests, your social and family interests, your ownership of property, the form of the Will that you have made.
You will have difficulty in displacing a domicile of choice after living in the UK for seventeen years.
There is no legal definition
Broadly it denotes more permanent residence that the term “resident” (above).
If you are resident year after year you are “ordinarily resident”.
In any year you may be ordinarily resident but not resident, or
In any year you may be resident without being ordinarily resident
If you have already lived in the UK for three years or more, then you would normally be regarded as ordinarily resident. If you have lived in the UK for less than that it does not mean that you are not ordinarily resident, an individual can become ordinarily resident from the first day they arrive in the UK
If you are a non-resident landlord you must pay UK income tax on your rental income. Your rent will be paid to you by the letting agent (or the tenant if there is no letting agent) net of basic rate tax unless HMRC has approved your application to receive rent gross. The application to receive rent without the deduction of basic rate tax is made on Form NRL1 for individuals. Forms NRL2, 3 etc are for use by non-resident companies, trusts etc.
All non-residents who are citizens of the EU and a wide range of other countries are entitled to a personal allowance which is a tax free amount that increases each year.
If you are UK domiciled but are non-resident and remain so for a period that cover five tax years, gains on any disposals you make may be outside the scope of UK taxation. To achieve this situation the disposal must take place after the 5th April following emigration.
If you are non-resident and not ordinarily resident you may complete Form R105 and have your UK bank interest paid to you without deduction of Tax and need not include it on your UK Tax Return (S128 FA 1995).
Non-resident Companies that are landlords of UK property pay income tax using the same rules for calculating the assessable amount as individuals.
If you are resident whether ordinarily resident or not, but not domiciled and have income arising overseas then you may elect to be taxed on that income arising overseas only to the extent that it is remitted to the UK. So if you have non-UK domicile and rent out a property abroad (whether a recent investment or the family home) you may elect to be taxed only on the income you bring into the UK. You will need to seek tax advice before making this decision.
So, if you have non-UK domicile status and rent out a property abroad, (whether a recent investment or a family home) you may elect to be taxed only on the income you bring into the UK. You will need to seek tax advice before making this decision.
If you have been claiming that you are resident in the UK, but not domiciled and therefore have no need to declare or pay tax on income or gains arising abroad then from 6th April 2008 you have two choices. Both may cost you more. Either you can pay £30,000p.a. and lose your personal allowances, OR you can declare your non-UK income and subject it to UK tax. However all is not lost. If you choose to keep your £30,000 and declare your foreign income then in most cases the Double Tax Agreement in the various Tax Treaties will allow you some credit for any tax paid overseas.
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