Everyone wants to pay their tax bill in the most efficient way possible; which means they are paying their fair share, but not extra.
Landlords with UK property that live abroad can benefit from belonging to the Non-Resident Landlord Scheme and from other tax reliefs. It is crucial that you are aware of both elements in order to maximise your tax savings.
UK Non-resident Landlords Scheme
Usually your letting agent deducts the appropriate UK tax from your rental collection before passing the income along to you and you receive an annual certificate of tax liability. If you belong to the UK non-resident landlord scheme then HMRC tells the letting agent that they can deliver your entire rental income without the tax deduction.
The key to this scheme is establishing your residency status, which can be more complex than expected and is determined by HMRC on a case-by-case basis. Generally, if your usual place of abode is in another country, you have lived outside the UK for six months and you intend to stay away from Britain for the rest of the tax year, then you should be considered a non-resident landlord.
There is much more fine detail involved in determining your residency status and new rules were introduced in April 2013 which moved some people to a different class even though their circumstances remained the same. HMRC does have a Statutory Residence Test to help clarify this rather muddy issue.
Factors considered include;
- if your move abroad is permanent, that you only visit the UK up to 183 days in one tax year and that you don’t work in Britain during that tax year.
- If you work outside the UK, the rules change again. To be a non-resident in these circumstances you must only spend 90 days in the UK with up to 30 of those being working days, in a tax year.
If you think you can be classed as a non-resident landlord, you will need to complete Form NRL1i to give HMRC all the information they need to make the final decision.
Tax Rebates for UK Non-Resident Landlords
If you earned less than the tax free allowance and paid tax on your rental income, then you can claim a tax rebate – possibly for the entire amount!
You can backdate a tax rebate claim for four years, so the amount you are owed can be substantial. A tax rebate claim must be completed separately to the application to the Non-Resident Landlords scheme. After the new rules of 2013, this has become more complex for non-resident landlords because the tax years prior to April 2013 will be subject to a different set of regulations than the following years.
You can offset some of the purchasing and running costs of your property against your tax bill, such as repair work and mortgage interest. You can also offset any losses against any future profits.
You declare these expenses on your self-assessment tax return so you can benefit from the tax relief available. Unfortunately HMRC’s free online submission process does not allow you to complete the section for non-resident landlords; this part requires commercial software.
Remember, self-assessment tax returns must be completed annually, correctly and by HMRC’s deadlines or you can face hefty fines.
Most non-resident landlords seek professional help to ensure that they submit accurate tax rebate claims and that they receive their maximum entitlement.
Bio: This article was provided by the experts at Tax Rebate Services, the leading specialists in UK non-resident tax return services.