Landlord Tax: A Guide to the Taxation of Non-Resident Landlords

The taxation of non-resident landlords refers to the implementation of tax deductions from landlords whose usual place of abode is outside of the UK. This legislation can be found in sections 971 and 972 of the Income Tax Act of 2007. Also known as overseas landlord tax, it was bought in to ensure that all individuals who benefit from the UK economy also contribute to the UK economy through taxes.

We’ll guide you through the non-resident landlord scheme and explain what it is when it applies and the implications of the scheme to ensure you and your landlord business are safe and compliant. 

What is a non-resident landlord?

A non-resident landlord is a landlord who receives rental income from a UK property and whose usual place of abode is outside of the UK. This usually means landlords who typically spend longer than six months outside of the UK. At this point, you would be considered a non-resident landlord and therefore be liable for overseas landlord tax.

What is the non-resident landlord scheme?

The non-resident landlord scheme was put into place to ensure landlords who live outside of the UK were contributing fairly to the UK economy. Regardless of the amount of rent you collect, landlords are required to pay 20% tax. This is on all rental income minus deductible expenses. They must also file an annual UK tax return to report their income and claim any allowable expenses. 

Compliance and record-keeping

All landlords should understand their responsibilities and their tax requirements. Whether you live in the UK or you are a non-resident landlord.  You must ensure you file an accurate annual UK tax return and claim any allowable deductions by tax regulations.

Failure to comply with UK tax regulations could result in hefty penalties including fines and in extreme cases criminal prosecution if you are evading tax.

What allowable deductions can I make on my rental income?

Before you submit your tax return, it is important to ensure that you have claimed any allowable deductions from your rental income. These include the following:

• Accountancy expenses 
• Advertising costs of attracting new tenants
• Cleaning fees
• Insurance on buildings and contents
• Legal and professional fees
• Letting agents’ fees
• Maintenance contracts 
• Provision of services

These are just a few of the allowable deductions that can be deducted from your rental income to calculate your tax liability. 

Can I receive rental income with no tax deducted?

There are a few reasons as a non-resident landlord that you might be able to apply to receive their income with no tax deductions. These include:

• Joint owners: If you jointly own a property and only one of the landlords lives outside of the UK, you only need to pay tax for their portion of rental income.

• Sovereign immunity: You do not have to pay overseas landlord tax if you have sovereign immunity, simply contact HMRC.

• The home country has a tax treaty with the UK: You may benefit from double taxation relief if your home country has a tax treaty with the UK. This prevents you from being taxed twice on the same income.

Seeking professional advice

As a non-resident landlord, it is important to seek professional advice to understand the taxation of non-resident landlords. To ensure compliance with UK tax regulations, it is always beneficial to speak with a tax advisor. This ensures that you are paying the correct tax rates and avoiding costly legal procedures. A tax advisor will be able to break down the non-resident landlord scheme. They can also advise you on the best decisions you can make.

Navigating the taxation of non-resident landlords can be complicated and involves understanding the UK’s tax rules, including the applicable tax rates, allowable expenses, and reporting requirements. 

Given the complexities involved, it’s vital for non-resident landlords to fully understand and adhere to these regulations. Helping you to avoid penalties and optimise your tax situation. We encourage all non-resident landlords to seek professional advice tailored to their specific circumstances to ensure they meet all requirements of the overseas landlord tax.

To help give you peace of mind, why not protect your investment with affordable and comprehensive landlord insurance? CIA Landlords compares quotes with nine leading insurers to make sure you get the best quote possible. It can help give you financial security as a non-resident landlord. We can also tailor the policy to your exact requirements. Get a quote or contact our team for further advice.