At this time of year, expat landlords often think about coming back to the UK to see family, check out the Christmas lights and deal with any issues around their rental property.
This year’s a bit unusual. Thanks to COVID-19 restrictions, Christmas is sort of on, but not really.
We’re told we can visit family, but probably shouldn’t; and if we do, we’re not meant to play Monopoly or hug granny.
And we’ve got to keep the windows open, bleak midwinter or not.
For many homesick Brits living overseas, it will still be the most convenient time to travel home as workplaces close for a week or two with compulsory time off.
With cold, wet weather, it’s also when overworked boilers break, creaky fences blow down and weathered roofs start to leak, meaning that your property might need a bit of TLC.
The questions that generally come up when we talk to non-resident landlords are around the tax implications of spending time in the UK and whether they can claim travel expenses on their tax return.
In this post, we’re going to cover that and a bit more.
“Will I pay more tax if I come home for Christmas?”
Let’s pin down some of the jargon around this before we go any further.
Non-residents, in tax terms, are those who have UK income but don’t live in the UK. If you have non-resident status, you only pay tax on your UK income, including property income, but not on anything you earn overseas.
But if you are in the UK for 183 days or more in any tax year – that is, more than half the year – HMRC will consider you to have been resident in the UK.
The usual rule is that ‘present’ means you were in the UK at midnight at the end of the day in question – so, if it’s tight, the times you fly in and out of the country could make a difference to your tax status.
It’s important to keep detailed records accounting for your time in the UK and overseas if you want to claim non-resident status. Ideally, you should also have evidence to back those records up.
If you’re over the line and classified as a UK resident, you’ll probably be expected to pay UK tax on your entire income, including what you earn overseas.
And don’t think you can just have an address in the UK – you actually need to live in a UK residence.
So, back to the original question: if your few days at home over Christmas will mean you’ve spent more than 183 days in the UK in total during 2020/21, then you could end up paying more tax.
Some good news, though, is that if you get stuck in the UK because of certain circumstances surrounding COVID-19 and accidentally cross the 183-day threshold, HMRC may allow some room for manoeuvre.
It will be considered ‘exceptional circumstances’ if:
- you’re quarantined or told to self-isolate in the UK
- the UK Government tells you not to travel as a result of coronavirus
- international borders are closed, effectively stranding you.
“Are travel expenses allowable?”
What you can and cannot deduct from your income for tax purposes is rarely simple.
In this case, the first question will be whether the trip is wholly and necessarily to do with managing your rental property.
If you travel with a partner and/or children and visit your family in the UK, HMRC will say, probably rightly, that it was a pleasure trip first and foremost. In which case, no, you won’t be able to claim your plane ticket or hotel costs.
On the other hand, if you fly in, go straight to the property, conduct whatever business you need to maintain your rental income, and then fly out again, you should be OK. Just make sure that, as always, you keep notes and evidence, and that the taxman isn’t going to find date-stamped photos of you pulling crackers and eating mince pies all over Facebook.
The next question is about whether your property is managed through a letting agent. If you manage the property directly yourself you might have an argument for claiming the cost of travel to the property from wherever you are staying in the UK.
In practice, though, most non-resident landlords use letting agents to manage the property day-to-day. In that case, you can only claim the cost of travel from the letting agent’s office to the property.
We’d always encourage people to claim every expense, however small, so do keep any receipts – even for a half-a-mile cab fare.
Your tenants’ rights
Finally, let’s step away from tax for a moment: if you’re visiting your property, make sure you’re not infringing the rights of your tenants to enjoy what is, after all, their home.
Give them at least 24-hours’ notice of your intended visit and make sure the time you suggest is reasonable – not the crack of dawn or after bedtime.
Not only is this the right thing to do but failing to follow these basic rules could open you up to accusations of harassment.
If it’s a house of multiple occupancy (HMO) you can visit the common areas without notice but, again, it’s best practice to give notice if you can anyway.
And COVID-19 adds a new dimension, of course. How will you make sure your visit to the property is safe for both the tenants and for you?
With that in mind, it probably makes sense to give them more notice than usual and to arrange for them to be off the premises when you visit, if it’s convenient for them.
You’ll certainly want to review the latest health and safety guidance which includes advice on hygiene and distancing.
Talk to us about tax returns and tax advice for non-resident landlords.