Expats renting out former homes or buy to let property in the UK must still pay tax on rental profits regardless of where they are based.
Whether an expat is an overseas landlord twists non-residence rules a little and looks at their usual place of abode.
So, instead of applying the statutory residence test, tax inspectors are told to determine where the landlord normally lives, and if this is outside the UK, then they are not a resident landlord.
However, someone who is outside the country for six months or less falls outside the net.
Expat landlord tax
An expat qualifying as non-resident under this test has two options for paying income tax:
- The letting agent or tenant can withhold tax from the rent and pay this money on to HM Revenue & Customs for the expat – but tenants paying less than £100 a week in rent do not have to withhold tax unless told to do so by HMRC
Letting agents include friends or relatives collecting rents on behalf of an overseas landlord
- Landlords can file a self-assessment tax return each year and receive rents with no tax deducted
The best choice for an expat landlord is filing an annual tax return, as they receive their rent gross and can better account for property business expenses, like mortgage interest, repairs, insurance and professional fees.
Joining the Non-Resident Landlord Scheme
To go down this route, the landlord needs to join the Non-Resident Landlord Scheme (NRL).
HMRC will only approve payment of rent without withholding tax if landlords can prove:
- They are up-to-date with their tax filings and payments
- They are outside the UK tax system
- They agree to file an annual self-assessment return to account for their rental income
Expat landlords should make sure they complete a Form P85 for HMRC before leaving the UK. This form dates departure from the UK and covers finalising tax affairs and makes compliance with joining the NRL easier.
Companies renting out property in the UK also fall under the NRL scheme if the company is treated as non-resident for tax purposes.
HMRC Personal Tax International
PO Box 203
Telephone 03000 516644 or 516651 (from the UK) or 0044 3000 516644 or 516651 (from abroad)