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As a non-resident landlord, understanding the tax implications of owning and renting out property in the UK is crucial. This section provides a comprehensive overview of the income tax, capital gains tax, and value-added tax (VAT) obligations that non-resident landlords must comply with.
Income Tax
Taxable rental income refers to the amount of money received by a non-resident landlord from renting out their UK property. This includes rent, service charges, and any other payments made by the tenant.
b. Examples of what Constitutes Taxable Rental Income
Examples of taxable rental income include:
- Rent paid by the tenant
- Service charges paid by the tenant
- Insurance payments made by the tenant
- Any other payments made by the tenant in connection with the property
Allowable Expenses
Allowable expenses refer to the expenses that a non-resident landlord can deduct from their taxable rental income. These expenses must be directly related to the rental property and incurred in the course of renting it out.
b. Examples of what Constitutes Allowable Expenses
Examples of allowable expenses include:
- Mortgage interest payments
- Repairs and maintenance costs
- Letting agent fees
- Council tax and utility bills paid by the landlord
- Insurance premiums
- Legal and professional fees
Tax Rates and Thresholds
Non-resident landlords are subject to the same income tax rates and thresholds as UK residents. The current tax rates for the tax year 2021/22 are as follows:
- Basic rate (up to £37,700): 20%
- Higher rate (£37,701 to £150,000): 40%
- Additional rate (over £150,000): 45%
Non-resident landlords are subject to the same tax rates as UK residents. However, they are only taxed on their UK rental income, whereas UK residents are taxed on their worldwide income.
Double Taxation Agreements
Double taxation agreements (DTAs) are agreements between two countries that aim to prevent individuals and companies from being taxed twice on the same income. The UK has DTAs with over 130 countries, including most EU member states.
Examples of How DTA Can Affect Tax Obligations
DTAs can affect the tax obligations of non-resident landlords in several ways. For example, if a non-resident landlord is resident in a country with which the UK has a DTA, they may be entitled to a reduced rate of tax on their UK rental income.
Deductions and Reliefs: Deductions and reliefs are available to non-resident landlords to reduce their taxable rental income. These include:
- Personal allowance: Non-resident landlords are entitled to the same personal allowance as UK residents, which is currently £12,570 for the tax year 2021/22.
- Rent-a-room relief: This relief allows non-resident landlords to earn up to £7,500 per year tax-free from renting out a room in their UK property.
- Capital allowances: Non-resident landlords can claim capital allowances on items such as furniture and equipment used in the rental property.
Capital Gains Tax
Capital gains tax (CGT) is a tax on the profit made from the sale of an asset. Non-resident landlords may be liable to pay CGT on the sale of their UK property. Non-resident landlords may be liable to pay CGT on the sale of their UK property if they have made a profit on the sale.
Calculation of Gains and Losses: The gain or loss on the sale of a property is calculated by subtracting the cost of the property from the sale price. This is known as the “chargeable gain”. For example, if a non-resident landlord purchased a property for £200,000 and sold it for £250,000, the chargeable gain would be £50,000.
Tax Rates and Thresholds: Non-resident landlords are subject to the same CGT rates and thresholds as UK residents. The current tax rates for the tax year 2021/22 are as follows:
- Basic rate (up to £50,270): 18%
- Higher rate (over £50,270): 28%
Non-resident landlords are subject to the same CGT rates as UK residents. However, they are only taxed on their UK property gains, whereas UK residents are taxed on their worldwide gains.
Exemptions and Reliefs: Exemptions and reliefs are available to non-resident landlords to reduce their CGT liability. These include:
- Annual exemption: Non-resident landlords are entitled to the same annual exemption as UK residents, which is currently £12,300 for the tax year 2021/22.
- Private residence relief: This relief may be available if the property being sold was the non-resident landlord’s main residence at some point during their ownership.
- Lettings relief: This relief may be available if the property being sold was at some point rented out as residential accommodation.
Call our office for further advice; our tax advisors can offer tailored guidance to help you meet your obligations without overpaying.