Published: 15/12/2017 By KM
If you are a Landlord who spends more than 6 months of the year outside of the UK you are liable to pay 20% of your rental income to HMRC. Your time abroad doesn’t even need be spent in your permanent or ‘main’ address, if you are out of the country for more than 6 months of the tax year you are officially a Non-Resident Landlord.There are 2 important things to remember:
- This tax is avoidable!
- Failure to follow the rules could result in a hefty fine!
A little known fact - your tenants could also be fined!
If your property is let privately it is your tenant’s responsibility to withhold 20% of the rent and pay this over to HMRC quarterly. The only exception is to tenants paying rent of less than £100.00 per week.
Either way, your tenants must complete an annual tax return declaring how much rent they have paid - the fine for filing an incorrect annual return is £3,000.00!!!
Tenants have 30 days from the start of the tenancy to register in the Non-Resident Landlord scheme. They must keep records of rent paid and any correspondence regarding expenses, such as repairs paid for on behalf of the Landlord, for 4 years.
If you use a Letting Agent there is no lower rent limit so the Agent will withhold tax for all Non-Resident Landlords until an authorisation code is obtained.
Example
Rent is £750.00 per month. Between 1st July and 30th September there is a roof repair paid for by your tenant, which comes to a total of £220.00. Your tenant must calculate the amount of rent due to you, minus the repairs, which is 750.00 x 3 = 2250.00, minus 220.00 = 2030.00. The amount of tax due to HMRC at the end of September is 20% of £2,030.00, which is £406.00.
So what can you do?
Don’t worry, you don’t have to limit your time abroad in order to avoid paying this tax. All you have to do is complete and return 1 form to HMRC, it's called an NRL1i form, which you can obtain from HMRC. Or, to save you the trouble, here it is. HMRC usually takes a few weeks to process the form and send you and your Letting Agent your NRL authorisation code. As soon as this is received, they no longer have to deduct this tax from your rental payments.
Get the NRL1i form here
The way to think about the NRL1i form is that it's a declaration to HMRC that you are earning rental income in the UK, although you are based abroad. Provided you let them know, the tax on your rental income remains the same. You would simply complete your tax return at the end of the year declaring your rental income. If you do not let HMRC know that you are residing overseas, there could be serious tax implications for you.
If you know any other overseas Landlords that might benefit from this article, please share it with them now.