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If you are currently resident in the UAE, whether temporarily or permanently, understanding what your UK tax obligations are when you purchase a UK property and receive rental income is crucial. If done correctly the tax savings that could be achieved are substantial. Whether you intend to stay in the UAE permanently or are planning to return to the UK at some point, it is essential to understand the UK tax position and ensure that your ownership structure is set up to meet your goals.

The UK taxes that will apply when you decide to purchase and let out property in the UK are as follows:- 

Income Tax (Applicable if you purchase the property in your personal name(s)

If you rent out property in your personal name, you will be required to submit an annual UK Self-Assessment Tax Return to declare the rental income and pay Income Tax in the UK. Each individual must complete their own UK Self-Assessment Tax Return. There are no joint Tax Returns in the UK so if the property is owned jointly, each individual must declare their share of the income and expenses separately on their own Tax Return. 

As a resident of the UAE, HMRC class you as a Non-Resident Landlord. You will be required to register with HMRC as a Non-Resident Landlord using form NRL1i. Failure to do so could result in your letting agent or indeed your tenants having to withhold 20% of the rental income until you do so.

If you are a British national or an EU national then you are still entitled to the UK personal tax allowance currently £12,570 per person. Nationals of many other countries are also entitled to the UK personal tax allowance depending on the taxation treaty between your country and the UK. Please get in touch if you wish to know if you would be entitled to the personal allowance.

What this means is that if you are the sole owner of the UK property, the first £12,570 of any profits will be tax-free. If the property is jointly owned, then you could receive two times the personal allowance, (£12,570 x 2 = £25,140) tax-free.

Profits between £12,570 and £50,270 are taxed at 20%.

Any profits over £50,270 up to £125,140 will be taxed at 40% and any profits over £125,140 will be taxed at 45%. 

Corporation Tax (Applicable if purchase the property via a UK Limited Company) 

If you were to purchase your property via a UK Limited Company to rent out the property, you will need to file annual accounts and tax returns for the UK Limited Company in the UK to declare the total rental income and pay Corporation Tax on the profits.

The Corporation Tax rate is 19% on profits up to £50k which increases to a maximum of 25% when profits reach £250k.

If you withdraw any dividends (funds) personally from the company, there will be no further tax due on the dividends in the UK as you are a non-UK resident. For someone living in the UAE this could therefore be a significant tax advantage. However, you will need to speak to an accountant in the UAE to establish whether there is any tax payable in the UAE on dividends from a UK Limited Company. Our understanding is that there is no tax in the UAE on the receipt of UK dividends as of the date of this article.

You may also have funded the purchase of the property from your own funds. As such any money you have introduced into the company is credited to you on your Directors Loan Account (DLA). As a UK company is entitled to set off interest payments against rental income this may therefore present a very useful tax planning opportunity. You may wish to charge interest on the funds you have lent the company which would reduce the profits. You would need to declare the interest under the tax rules currently applicable in the UAE and we therefore advise that you check the tax position in the UAE first before doing so.

If you intend to hold the properties for the long term to pass on your property wealth to your children, then a limited company can also offer an effective inheritance tax planning opportunity. In particular, you may wish to consider a Family Investment Company structure to achieve this. Please see the following:-

Property Investment Company and Inheritance Tax – UK Landlord Tax

Capital Gains Tax (applicable when you sell the property) 

When selling properties in your personal name or names, any capital gain made will be subject to Capital Gains Tax (CGT). HMRC requires you to report the sale and pay the tax due within 60 days of the sale. Each individual will need to report their sale separately if the property is owned jointly.

The CGT rate is 18% on gains up to £50,270 increasing to 28% on gains in excess of £50,270. The threshold of £50,270 takes into account any UK income such as income from the rental property in the tax year of sale. 

If you sell a property in a Limited Company, the gain is subject to Corporation Tax in the same way as the rental income, i.e., at 19%/25% depending on the profits/gain for the year. If you then transfer the net funds from the company to yourself personally this will be considered a dividend and so no further tax will be due in the UK as you are non-resident, but you will need to speak to an accountant in the UAE to establish the tax payable in the UAE on dividends from a UK Limited Company. 

Inheritance Tax 

An individual’s equity (market value of the property less any debts due) in their properties form part of their UK Inheritance Tax estate. On death, the value of the UK properties over the £325,000 nil rate band (available per person), will be subject to an inheritance tax charge of up to 40%.

If the property is owned via a UK Limited Company, on death the value of the company’s shares form part of the individual’s UK Inheritance Tax estate. The value is derivable from the market value of the properties less any debts due. The value of their shares will be subject to an Inheritance Tax charge of up to 40% over the £325,000 nil rate band (available per person).

UK Landlord Tax advises 100’s of UAE-based landlords with any size of portfolio. Making sure you understand the UK and UAE tax position is essential. If you have any further queries on this subject please reach out to us at 01902 711370 or email enquiries@uklandlordtax.co.uk if you have any questions about buying your next property.

Thandi Nicholls Ltd
Creative Industries Centre
Glaisher Drive
Wolverhampton
West Midlands
WV10 9TG