The UK has a notoriously complicated tax system. For non-residents, owning residential property in the UK can be even more difficult. To help you understand what you need to know about taxes and residential property ownership in the UK, here is an overview of how it works.
But first, we need to know the circumstances you can be considered a non-resident. A non-resident is someone who spends less than 16 days in the UK and works abroad full time (35 hours per week) or who has not been classed as a UK resident for the past three tax years.Â
The UK's tax, payments, and customs authority (HMRC) has continued to increase its effort to collect taxes owed by non-residents who own residential property. There are different considerations when it comes to dealing with UK residential property if you are not living in the country full time. If this is your situation then please read on! This article summarizes important tax considerations to have in mind as a non-resident throughout the buying, selling, renting, or owning UK residential property.
Income Tax Payable on UK Residential Property
The UK domestic law and the International Tax Treaty give the UK the first right to tax income from real estate, even if another country taxes it. It's a legal requirement for non-residents to be registered with the HMRC as non-resident landlords if they earn income from renting a property within the UK. Failure to do so, the letting agency in charge of the tenants must withhold 20% tax from the rental income source. In cases where you own the property jointly with your spouse, you need to register separately with HMRC to avoid tax withholding.
If the non-residents are taxpayers in the current country of residence, they may be able to claim the double tax relief.
Filing of UK Tax Returns
It's also a legal requirement for non-residents to file a UK tax return with HMRC at the end of every financial year to report taxable incomes, profits, and losses. The Self-Assessment Tax Return report should be submitted to them before the stated deadlines. The report has to include the gains and the deductible expenses such as insurance, mortgage interests, repairs, and maintenance.
The Capital Gains Tax (CGT) For Non-Residents
Generally, the Capital Gains Tax used to apply only for UK residents from earlier days. However, today CGT can apply to a non-resident if you want to sell the property. It can apply again if you want to return to the UK within five tax years. The law requires you to pay this tax for any increase in value of the residential property regardless of your residence status. If you're liable to this tax on disposal, you may not need to pay for this tax on the whole again. You are required to report the disposal to the HMRC within 30 days of completion.
If you hold the real estate in your name or through a trust, the first part of any gain from the sale will be exempted from tax. You may not be liable for CGT if you hold the property as your main or only residence, though you need to live in the property for at least 90 days within a tax year for you to qualify for the tax exemption. The main disadvantage is that this approach affects your non-residence status. Notably, the exemption applies if the property is held through on trust but not a company.
Disposals Of UK Property by Non-Residents
It's important to remember that sale of UK property in Australia is subject to UK capital gains tax regardless of your residence status. Therefore, if you want to sell any property, the HMRC should be notified within 30 days of sale completion. This notification is a must, whether you make gains or not. If any tax is due at this point, you're supposed to pay. If you need to file a Self-Assessment tax return for that financial year, you must include the gains, even if you had previously informed the HMRC.
In conclusion, following the rules for non-residents' property tax is not always easy, but with some research and planning, you should be able to avoid penalties. This also serves as a good reminder to consider the tax requirements before acquiring, selling and renting a UK residential property.Â