Overseas Landlords And Tax On Buy To Let Profits

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The tax man is focussing more on raising money from landlords – but with the latest government figures showing up to half of buy to let landlords live overseas, what are their tax options?

HM Revenue & Customs (HMRC) likes property investors because houses, land and commercial buildings are stuck in place and are soft targets for raising tax against.

Overseas landlords may think they are beyond the reach of HMRC, but the reality is very different because of the non-resident landlord scheme.

Landlords who do not live in Britain should register with the non-resident landlord scheme.

Non-resident landlords

Then, they have two choices of how to pay any tax on rental profits –

  • File a self-assessment tax return
  • Arrange for their letting agent or tenant to withhold income tax from the rent for paying over to HMRC

The second option may be OK if a landlord trusts their letting agent or tenant not to take the money and run.

The letting agent must deduct basic rate tax – that’s currently paid at 20% – from the rents before paying the landlord.

If the landlord does not have a letting agent and the rent is more than £100 a week, the tenant must do the same.

They are allowed to deduct normal landlord expenses before working out the tax, but this means landlords have to make them privy to their financial affairs.

Expats and foreign property investors

The best way around the problem is to file a tax return each year.

Before this can be done, the landlord has to bring any outstanding tax affairs in the UK up-to-date and then submit a form asking for permission to join the scheme depending on whether they trade as an individual, company or trust.

If HMRC agrees the property owner can join the non-resident landlord scheme, a certificate is issued to the landlord and a notice telling the letting agent or tenant not to deduct tax from rents is posted out.

The definition of non-residence for a landlord is different from that of someone who is an expat or non-resident for tax.

A non-resident landlord is someone whose ‘usual place of abode’ is not in the UK. The definition does not include time limits or other conditions, so can apply to someone working overseas as much as a property owner who is tax resident elsewhere.

Find out more about the non-resident landlord scheme and download forms from the HMRC web site

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