Buy To Let Tax Trap For Non-Resident Landlords

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Offshore lenders are reporting a buy to let boom as expats plough their cash into property investment.

Skipton International has reported completing 200 buy to let loans for expat landlords with another 130 applications with underwriters.

But that’s just the first financial hurdle for offshore landlords who face a complicated set of tax rules in the UK.

If the landlord is not registered with HM Revenue & Customs (HMRC) non-resident landlord scheme (NRLS), the letting agent or tenant are responsible for withholding tax on rent payments of more than £100 a week.

Signing up to the NRLS allows the landlord to receive the rent without any tax deduction but they then have to submit a self-assessment tax return detailing rental income and expenses for each year.

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Tax pitfall for overseas landlords

The tax trap is who HMRC regards as a non-resident landlord as the definition is different from a person who is not tax resident in the UK.

For the NRLS, a non-resident landlord is when their ‘usual place of abode’ is outside the UK for more than six months.

A usual place of abode is the place where the landlord lives, even if they maintain a main home in the UK.

This can clearly catch UK resident taxpayers working overseas as well as permanent expats.

If the letting property is jointly owned and one owner lives in the UK and the other is classed as a non-resident landlord, then the non-resident landlord’s share of income is subject to NRLS rules.

Joining the non-resident landlord scheme

If the letting agent or tenant withholds tax on rent payments, the tax is calculated at basic rate (20%) and allows for the deduction of rental expenses, such as mortgage interest, accountancy costs, repairs, professional fees and insurance.

However, most landlords will not want tenants or letting agents to access this financial information to safeguard their privacy and risk of identity theft.

The result is most non-resident landlords will pay more tax than they need.

Mortgage advisers and lenders are unlikely to have experts on hand that can fill overseas landlords in about their tax obligations, but a good place to start finding out is the HMRC web site.

HMRC has online help for non-resident landlords which explains how the scheme works and how to join.

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