Income tax is payable on the net income from property letting irrespective of where you live. It is your responsibility to inform the Inland Revenue of your letting income whether you are a U.K. resident or a non U.K. resident landlord. It is important to note that the Inland Revenue do request every Letting Agency to provide them with names and addresses of all Landlords they act for each financial year.
Under no circumstances should you conceal property income from the Inland Revenue
If you are not a UK resident, ensure you apply to the Inland Revenue for rents to be received gross as early as possible. There is no advantage in delaying.
Take steps to mitigate your tax liabilities by seeking professional advice from a reputable Accountant who will advise on Income Tax and Capital Gains Tax issues.
Retain all invoices for sundry expenses such as ground rents, repairs etc. and ensure that the nature of the work is clearly stipulated on the invoice whilst the property is let.
An independent professional inventory and record of damages must be drawn up at the beginning and end of each letting period. This may well avert a potential dispute over “replacement costs” which are allowable if no “wear and tear” allowance is claimed.
Even if you are a non-resident living outside the U.K. in excess of 6 months, then, like a UK resident, the excess of income over allowable expenses is subject to UK income tax. However, there are specific procedures for collecting income tax from non-resident landlords. The following general points may be of interest:
The agent who collects rent for the non-resident landlord must deduct tax at source from this income and pay the tax deducted to the Inland Revenue unless specifically exempt by written authority from the Inland Revenue not to do so.
It is possible to apply to the Inland Revenue for Prospect Residential to be exempt from withholding income tax at source (ask Prospect Residential Lettings for an application form to receive UK rental income with no tax deduction) This exemption is, however, granted at the Inland Revenue’s discretion.
At the end of each tax year, your tax position must be resolved with the Inland Revenue. As with a resident landlord, this usually involves submission of a UK tax return showing details of your letting income and expenses. If you have approval to receive rents gross and do not submit annual tax returns to the Inland Revenue you may be infringing tax regulations and, furthermore any exemption that has been granted may be withdrawn.
It is normal for non-residents to appoint an accountant to act for them whilst they are abroad.
Capital gains tax
As a Landlord, you should be aware that there is a risk that you might be exposed to Capital Gains Tax. Always take professional advice, but as a word of comfort, the following are unlikely to incur this tax:
Non-resident landlords (Those letting a former home for no more than three years or those letting a former home when obliged to work elsewhere in the UK).