Self assessment for overseas landlords
Let’s explain by way of an example:
Sophie moved to work in Australia for a number of years and let her property in the UK in September 2020 for £15,000 with allowable expenses of £3,000 per annum. She has other UK income which is not liable to deduction of tax under PAYE but uses her personal allowance, so the property income will all be taxed at the basic rate (currently 20%). She has not had to complete a self assessment tax return before.
What are her responsibilities?
Because Sophie has become non resident, Sophie’s managing agent or tenant (if there is no agent) have a duty to deduct tax at the basic rate and remit it to HMRC. If Sophie wishes to receive her income gross without deduction of tax she will need to register with HMRC using form NRL1
Couples need to complete a form for each partner. HMRC will then notify the tenant or agent that no tax needs to be deducted.
Before 5th October 2021
If Sophie has not completed form NRL1 and basic rate tax has not been deducted, she must inform the HMRC that she has a source of untaxed income within six months of the end of the relevant tax year. As Sophie’s rental income profits are first received in the tax year ending on 5th April 2021 she must notify no later than 5th October 2021. HMRC have produced form SA1 to enable taxpayers to notify that they have a liability.
Before 31st October 2021 (optional)
If she wants to complete a paper tax return and/or HMRC to calculate her tax liability, the paper 2020/21 Tax return must be filed by 31st October 2021. There is a £100 penalty if the paper return is filed after this date.
Before 31st January 2022
If she has not filed a paper tax return by 31st October 2021, she must file a tax return electronically by 31st January 2022 or she will be liable to a penalty of £100. There are certain individuals (e.g. politically sensitive individuals) who are not allowed to file electronically so they may have to file a paper return by this date instead. Returns cannot usually be filed electronically from overseas so you would need to arrange for us (or someone else in the UK) to file the return on your behalf.
What are Sophie’s tax liabilities?
Assuming that the income carries on at the same rate until at least 5th April 2022, her liabilities will be:
Tax Year Tax due
2020/21 £1,400 (7,000 @ 20%)
2021/22 £2,400 (12,000 @ 20%)
When is her tax due?
If the net liability is less than £1,000 then the liability is due on 31st January following the end of the tax year and there are no payments on account. If you are a Crown employee or you pay tax under PAYE, you may have the liability collected through your PAYE code (please see our article for resident landlords)
If the liability is more than £1,000 the liability is due on 31st January following the end of the tax year, payments on account for the following tax year of half of the previous year’s income tax liability and another half six months later on 31st July.
If the liability of the following year increases then the balance is due on the following 31st January and the payments on account increase for the next year. If the liability for the following year decreases, then there would be a repayment of the difference and the payments on account reduce for the next year. A claim can be made to reduce the payments on account if a reduction in the liability is expected, for instance if the rental income had ceased.
If the payments are reduced by too much, there is an interest charge on the over claim. In the first year in which payments on account are due, there is effectively a payment of one and a half years tax at once. This is best shown using Sophie’s liabilities as an illustration:
|Date Due||Tax Year||Tax Liability|
|2020/21 Total Liability||1,400|
|2021/22 1st POA (1/2 x 1,400)||700|
|31st January 2022||2,100|
|2021/22 2nd POA (1/2 x 1,400)||700|
|31st July 2022||700|
|2021/22 balance 2,400 – (2 x 700)||1,000|
|2022/23 1st POA (1/2 x 2,400)||1,200|
|31st January 2023||2,200|
|2022/23 2nd POA (1/2 x 2,400)||1,200|
|31st July 2023||1,200|
If Sophie’s income and tax liability were to stay the same then her payments would remain at £1,200 on 31st January and 31st July each year thereafter because the payments on account would match the liability. This is unlikely in practice, but if the income levels are similar each year, the payments in January and July are likely to be similar after the first three years.
Capital Gains Tax
Non-residents are liable for Capital Gains Tax on all sales of property in the UK. An online return must be made and the tax must be paid within 30 days of the completion of the sale.
What if you are late?
The penalties have increased significantly and it is vital that all taxpayers ensure that their returns are filed on time.
There is an automatic non-refundable penalty of £100 if the return is not filed by the due date (usually 31st January following the end of the tax year). If there is a reasonable excuse, the penalties will be waived.
If the return is more than three months overdue, there is a penalty of £10 for each further day that the return is late up to a maximum of 90 days. The daily penalties do not apply in the case of CGT returns.
If the return is more than six months late there will be a further penalty of £300 or 5% of the liability if this is higher.
If the return is filed more than twelve months after the filing deadline (i.e. 31st January 22 months after the end of the tax year for self-assessment returns.) there will be a further penalty of £300 or 5% of the liability if this is higher in addition to the penalty due for the previous 31st July. In serious cases the penalty may be up to 100% of the tax due.
If you do not pay on time, interest runs on any amount paid late. There is also a 5% late payment penalty if the liability for the previous tax year is not paid by 1st March following that tax year and a further 5% late payment penalty if it is not paid by the 31st July after that. If the tax is not paid by the following 31st January then there will be a third 5% late payment penalty.
What you do if you cannot pay?
Try to make an arrangement with HMRC. There is currently a Business Payment Support Service Helpline their contact number is 0300 200 3835.
© Thandi Nicholls Ltd 2021 All Rights Reserved – The above articles are provided for guidance only and may not cover your personal circumstances so you should not rely on them. It is important that you seek appropriate professional advice which takes into account your personal circumstances where you can provide the full facts of the case and all documents related to your case. Thandi Nicholls Ltd t/a uklandlordtax.co.uk, K Nicholls FCA or S Thandi cannot be held responsible for the consequences of any action or the consequences of deciding not to act.
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