How many expat landlords are there? From any information I can gather, it varies because many expats won’t directly invest in property because they are abroad, however, they might use a company that offers full management services or through other means such as loan notes and REITS.
As an expat who would be classed as an accidental landlord, it really brought to life problems, questions, and queries. If you are wondering why so many like property in the UK, here is a Gov report that details why the UK became landlords – English Private Landlord Report.
Stringent regulations determine the method for paying income tax on profits from property rentals. Failing to correctly determine one’s non-resident status could lead to substantial fines imposed by tax authorities.
Under the Non-Resident Landlord Scheme (NRLS), if you lease a property in the UK and spend more than six consecutive months abroad, you qualify as a non-resident landlord. Are you classified as a non-resident landlord?
It’s worth noting that the NRLS primarily focuses on where you reside during that six-month absence from the UK rather than your tax non-resident status. This scheme encompasses two categories of landlords who rent out properties in the UK:
- Non-residents who seldom or never visit the UK, often including expatriates with their primary residence overseas.
- UK residents who spend extended periods abroad, typically those with a holiday home where they spend a significant portion of their time. This also includes expatriates on temporary assignments abroad who rent out their UK home during their absence.
What occurs when you become part of the Non-Resident Landlord Scheme (NRLS)?
As a non-resident landlord, HM Revenue & Customs (HMRC) is concerned that you might not correctly pay income tax on your rental profits. To ensure compliance, your tenants or letting agents are required to deduct income tax from the rent they pay to you or collect on your behalf. They must then forward the full amount to HMRC. This rule applies to tenants paying rent of £100 per week or more and all letting agents.
The NRLS also enforces stringent regulations concerning who qualifies as a letting agent. In addition to professional agents, anyone residing in the UK for six months or longer who assists a non-resident landlord in managing their property business is considered an agent. This could include family members, friends, or helpful neighbors.
Both tenants and letting agents can face fines of up to £3,000 for submitting inaccurate NRLS returns to HMRC.
Why should you consider joining the NRLS?
When a non-resident landlord registers with the NRLS, HMRC grants written permission to refrain from deducting income tax from rental payments. Instead, the landlord is required to file a self-assessment tax return every January to account for any income tax owed on rental income. This return is submitted using a dedicated section within the property pages of the core tax return. Companies handle this through their corporation tax return.
Enrolling in the NRLS allows rental income to be received without tax deductions, aiding cash flow as landlords can retain the tax until they file their self-assessment or corporation tax returns. It’s important to note that this option is not available to those who meet the criteria for non-resident landlord status. Failing to register can result in fines.
Applying for non-resident landlord status:
Non-resident landlords must complete a Form NRL1 to receive rental income without tax deducted by tenants or letting agents. HMRC will require information such as the duration and location of the landlord’s residence outside the UK, personal data including National Insurance numbers, contact details, and details about other properties owned and rented out in the UK.
For further details about the scheme, you can refer to HMRC’s guidance notes. While these notes offer comprehensive information for letting agents and tenants, much of the content is also relevant to landlords.
Summary
If you are a UK expat and you are interested in property as an investment, we have partners that we work with to signpost you to because I’ve heard many stories in my life about deals falling through, investors not having an exit plan or legislation changes and it alters the whole deal.
Many see investing in property as a way to increase their income and boost their pension. Expats can have mortgages, but they are generally slightly higher rates than what you get if you were a resident in the UK, plus, please take into account that you won’t be able to fully manage the property from abroad!
However, when it comes to tax, there are considerations that you must be aware of please be aware that the property will form part of your estate and that it will be taxed at a higher rate if over the nil rate band because you only get relief on your main residency if £175k for a single person, double for a married couple.
If you have any questions, please contact me using the button at the bottom of the page or by visiting my contact page.
Other articles you might like:
- Capital Gains Tax For UK Expats on UK Property
- Top Places to Invest in Real Estate in South East Asia and Why: 2023
- Real Estate Investment Trusts (REITs) For Expats
