Is my letting income taxable in the UK?
Yes, but you may be able to set part or all of the UK tax against the tax payable in the country where you are living.
How can I minimise the tax I have to pay?
Deduct the expenses of letting from the gross rents and claim UK tax free allowances, where permitted.
What kind of expenses can I deduct?
All the expenses directly related to maintaining and running the property, arranging the lets and collecting the rent. If you borrow to buy the property, finance charges and loan interest are not deductible, but limited relief is available for loan interest and other finance costs. See Finance cost relief.
Am I eligible for any UK tax free allowances?
It depends on where you are a citizen and where you are resident. Landlords Tax Services will advise you.
Suppose the UK tax authorities don’t know about my rental income?
The UK H.M. Revenue & Customs (HMRC) have arranged matters to ensure they will know about it. If you don’t register with HMRC, your lettings agent will have to deduct tax at the basic rate (currently 20%) from your gross rent with little allowance for expenses before they send you what’s left. You may also be subject to a penalty for failing to register — even if there is no tax to pay.
How do I register with H.M. Revenue & Customs?
Ask Landlords Tax Services to complete a form SA1 and submit it to HMRC for you. This is free of charge if we then go on to prepare and submit one UK tax return for you.
Will I have to make UK Tax Returns?
Yes. Once a year unless instructed in writing by H.M. Revenue & Customs to do otherwise.
How will I know I’m paying the right amount of tax?
Landlords Tax Services will tell you.
Capital Gains Tax
I thought non-residents do not pay Capital Gains Tax (CGT). Now I have heard they do. What is the position please?
This is generally far more complicated than is realised. There have been many thousands of pages written on this subject, and the following paragraphs can only give a very generalised and necessarily incomplete view of the rules.
From 5th April 2020, whether you are UK resident or non-resident, if your property sale brings you into the Capital Gains Tax net, then the rules for calculating the tax are the same except that permanent non-residents may ignore the gain that accrued before 5th April 2015 (residential property) or 5th April 2019 (other property). See UK Resident CGT.
In addition, any tax due is payable within 30 days of the completion of the transaction.
When do I have to tell HMRC about a disposal of a property?
Non-residents must use the Capital Gains Tax “Report and Pay” system to notify HMRC of a disposal of all UK property and pay any tax due within 30 days of the transfer (completion). The disposal is reported again in the Annual Tax Return. Disposals of other property including residential property overseas are only reported in the Annual Tax Return.
I am going abroad to work for three years and want to rent out my home. My letting agent has told me that I will be taxed on my rental income at 20% unless I complete a form now and will then have to complete UK Tax Returns. Is there any advantage to me in dealing with all this paperwork?
Usually the answer is “yes”. Agents collecting rent for non-resident landlords are obliged to deduct tax at (currently) 20% of the rent after deducting the small number of expenses that they are aware of.
The form you are being asked to complete now is the NRL1 (the number of all HMRC forms is in the bottom left hand corner) which is an application for relief from the obligation to have tax deducted at source. Once this permission is granted, you will have to keep your Tax Returns up to date or it will be withdrawn. The advantage to you is that the calculation of the amount taxable looks far more attractive. In arriving at the taxable amount you may now deduct all those expenses you have incurred in maintaining the rental income that your agent did not know about. These include the loan interest you have paid on any loan you took out to buy the property or bring it up to its present standard. In addition if you are a UK citizen or a citizen and resident of another qualifying country you will still get all your UK Personal Allowances to set against your UK income. Currently this will give you an additional amount of £12,570 tax-free. For most people the actual tax paid is considerably lower than if you took the lazy way out and just put up with the 20% deduction. And of course the 20% deduction does not let you off making returns.
I have just furnished a house and put in a new bathroom to rent it out. What allowances do I get for the cost of the furniture and bathroom?
Allowances for capital items are called Capital Allowances. Capital Allowances are not available in respect of furniture or furnishings in a dwelling house.
You may claim the cost of replacements of furnishings and equipment on a like for like basis. Normally the new bathroom would qualify as a repair as long as there is no material improvement in the functionality or size or position.
I intend to buy a property to let. It will need a new kitchen and some treatment of the timber in the property. Will I get tax relief on the cost of this?
Expenditure to make good dilapidation that occurred before you bought the property is normally allowable as long as the property was in a usable state when acquired. The key test is whether it was in such a dilapidated condition that you obtained the property at a material discount. If you did then the cost of bringing it back up to market value and condition may be treated as part of the cost of the property with relief being given against the gain when you sell it and not against the rental income.
I am buying to let a property with a rather complicated legal position. I have been warned that the fees may be quite high. What tax relief do I get on legal fees?
The costs associated with the acquisition of the property are treated as part of the acquisition cost and most are allowable in the calculation of the capital gain arising when you sell. Costs of the first letting are not allowable unless it is for less than a year but the costs of renewing a short lease are allowable.
I want to rent my property to a relative who cannot afford the full market rent. What are the taxation implications of this?
If you rent a property to a connected person it is likely that H.M. Revenue & Customs will ask whether the rent being charged is at a commercial rate. If the rent is below the market rate then the allowable expenses may be restricted so that any loss is ignored, and is not available for offset in the year or in any future year.
I travel to the UK each year to check up on the property and use the opportunity to visit the family. Is the cost of travel allowable?
It is not only non-residents who incur travel expenses in looking after their investment property. The rules are more or less the same for both non-residents and for residents of the UK. An expense is allowable for tax purposes if it was incurred wholly and exclusively for the purposes of maintaining the property income. HMRC generally accepts that this test is satisfied if the principal purpose of the journey is to maintain the property income and any other activity is purely incidental. Clearly whether a landlord lives in Manchester or Miami, if he travels to Liverpool only to attend to his let property there, the cost of the travel is normally allowable. If the landlord plans to use the trip to look up old friends then this may disallow the whole cost of the trip. If he plans only to deal with the property during his visit and spends an evening with a friend this probably does not disqualify the cost of the trip.
Before buying my investment property I had two abortive purchases. The legal and survey fees amounted to about £1,500. Can I claim tax relief on these?
No, I am afraid not.