Tips For Managing A UK Buy To Let For Expats

Lisa Smith, BA (Hons), CeFA

Expats who want to rent out their home in the UK need to consider a lot before they move overseas as their decisions can impact their finances and tax status.

Renting Your UK Home

While renting out your home in the UK can generate some useful extra income while you are working abroad or simply relaxing in the sunshine, there are some tax and legal points you must bear in mind.

Don’t just jump on a plane and hope for the best – this can mean flying into problems in the UK that are difficult to unravel from a foreign country.

Always speak to an experienced and qualified legal and tax professional to make sure your property and tax status are properly protected.

Meanwhile, here is a list of some of the most important points that you should consider:

Mortgage matters

The first step in renting out your home if you have a mortgage is letting your lender know.

They will have to give consent to let and that may come at a cost, not only a charge for arranging permission, but an increasing the cost of your mortgage to buy to let rates.

If you rent out your home with consent to let, you are breaking your agreement with your mortgage provider and that voids buildings and contents insurances should something go wrong.

Your letting agent will want a copy of the written consent from the lender before they start work to find a tenant.

Covering insurance

Talk to a specialist landlord insurance broker or provider about buildings and contents insurance. Standard home insurance will not give adequate cover.

You may also want to think about some add-ons like rent guarantee cover that protects income should a tenant fall into rent arrears. Most policies will also pay legal costs for evicting a tenant.

Landlord insurance will come with public liability cover that pays compensation and legal costs should a tenant die or suffer injury or disability from an incident that happens on your property.

Tax for expats

Owning a home in the UK is a big indicator that you could remain tax resident even if you live full-time in another country.

This can impact the tax you pay as your foreign income could still be taxed at UK rates, even if you live in a tax-free or low-tax place, such as Dubai or Abu Dhabi.

Talk to an expat tax professional to determine your status before you leave the UK to avoid any unpleasant financial surprises from HM Revenue & Customs.

You should file a form P85 and finalise your UK tax affairs before you leave.

The worst case scenario is HMRC will regard you as UK tax resident even though you are living abroad.

Don’t forget you still pay capital gains tax on the disposal of a UK property if you are an expat – and the bill must be settled within 30 days of completing the sale.

Special tax scheme for landlords

Sign up for the Non-Resident Landlord Scheme with HMRC before you go.

The scheme lets non-resident landlords collect their rents gross of tax when they are out of the country, providing they file a self-assessment tax return at the financial year-end.

If HMRC does not grant you a NRLS exemption, your tenant or letting agent must deduct tax from rents and pay the money to HMRC before sending your bank the balance.

Linking up with letting agents

Having someone local to deal with issues can remove a lot of stress, like making sure tenants pay the rent and on hand to manage repairs.

Find a reliable landlord by word of mouth if you know other landlords. Make sure they are regulated to protect your money and a member of a redress service so you have somewhere to go with complaints.

Typical letting agent fees are around 12% of the monthly rent plus VAT.

Your letting agent should carry out six monthly inspections to ensure tenants are looking after their homes properly and to catch any maintenance issues before they become too serious.

Budget for hidden costs

Budget for repairs, time when the property stands empty and general maintenance costs.

Set up a fund from the monthly rent to cover replacing carpets, upgrading kitchens and redecoration so you do not face a surprise financial hit.

It’s inevitable your property will stand empty at the end of a tenancy or while you are carrying out redecoration, and the bills will still need paying even though no rent will be coming in.

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