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Whether you have decided to move abroad for work or lifestyle reasons but keep your UK property or you have opted to buy a property in the UK as an investment, you need to be aware of the tax implications both if you rent out the property and when you come to sell it.
The rental income of the property is subject to UK Income Tax. The level of net income combined with whether you qualify for a Personal Allowance determines how much tax is due.
To protect the Exchequer, the HMRC introduced the Non-Resident Landlord Scheme to collect tax at source from overseas landlords either from the letting agent or the tenant, unless you receive a rent of less than £100.00 per week directly from the tenant.
This is also the case should the payment be made from the tenant to your UK representative, such as a friend or family member, who is not a letting agent.
Under the scheme, the rent, less any direct expenses incurred, is taxed at the basic rate of 20% with no consideration made of your entitlement to a Personal Allowance or the other costs incurred on the property.
As a result, in most cases, the landlord is grossly over-taxed and only has the chance to remedy the situation at the end of the tax year.
To counter this, as non-resident landlord, you can apply to have you rent received without tax deducted. Broadly speaking, the application will be approved so long as you are up to date with your UK tax returns and payments.
If your application is approved, HMRC will instruct your letting agent or tenant not to deduct tax from your rent. Instead, you will be required to declare your income through a UK Self-Assessment Tax Return.
It is important to bear in mind that if you intend to no longer live in the UK, it does not automatically follow that you are a non-resident for tax purposes and, if you are, there are absolute rules on the number of days you will be allowed to spend in the UK. This will be determined by the Statutory Residence Test. The HMRC provided an online Tax Residence Indicator but, given the Guidance Notes run to 105 pages, we would strongly recommend that you review this with a tax advisor.
Although you have the option of managing the rental of the property yourself or relying on friends or family, this can be extremely time-consuming and stressful. As a result, most commonly a professional letting agent is appointed to administer the property.
As a rule, the agency fee will be between 10% and 15% of your rental income. In exchange, the agency will ensure that the property is tenanted with as few breaks as possible, the rent is collected in a timely manner and the property is well maintained.
If you have a mortgage on the UK property that you are planning to rent out, it is vital that you contact your provider and notify them before you commit to the decision. It may be moving overseas and renting out your property violates your current loan agreement. This needs to be resolved prior to you embarking on the property rental.
Finally, it is critical to ensure that you have adequate landlord insurance in place not only covering the building and contents but also rent arrears, legal costs and damage.
This is easier said than done as the main insurers tend not to make it obvious whether they cover overseas landlords.
To save time on lengthy research, you could opt to contact a landlord insurance broker to advise on the providers and their level of cover and policy limits.
Emergencies tend to happen at the most inconvenient times so, as well as the cost of the premium itself, you should consider how contactable the insurer will be. For instance, an online chat facility would reduce the cost of phone calls.
Ideally, the policy will allow a disclosee to be nominated. This is a person authorised to act on behalf of the policyholder which can be especially useful where your time zone difference becomes a factor.
At CooperFaure, we are currently advising clients with both individual and corporate property portfolios and would be pleased to review your circumstances. Please email us at tax@cooperfaure.co.uk for an initial, free consultation.
We will be publishing an accompanying newsletter that looks in detail at the Personal Allowance, Income Tax and Capital Gains Tax implications for overseas landlords.
In the meantime, this BUTTON links to a free tax calculator to provide an indication of the Income Tax due for the 2015-16 and 2016-17 tax years.
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