Self assessment for overseas landlords
If you let out a property in the UK and you are UK non-resident, you must complete a UK self assessment Income Tax Return.
The tax year runs from 6th April to 5th April each year. You have a duty to notify HMRC that you need to prepare a tax return by 5th October following the end of the tax year in which the income first arises.
If there is a tax liability for a particular tax year (year 1) then it is due on the 31st January in year 2.
Payments on account
If your liability for year 1 is more than £1000 (excluding any student loan payments) then you have to make payments on account of year 2 of one half of the year 1 liability on 31st January in year 2 and one half of the year 1 liability on 31st July in year 3.
If your liability for year 2 is more than the payments on account then the balance is due on 31st January in year 3 (along with any payment on account for year 3).
If your liability for year 2 is less than the payments on account made, there will be a refund of the difference along with a small amount of repayment supplement.
You can claim to reduce your payments on account if you believe that your tax liability in year 2 will be lower than year 1. However, if you underpay, there is an interest charge.
Let’s explain by way of an example:
Sophie, an American citizen, moved to work in Australia for a number of years and let her property in the UK in September 2022 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 2023
If Sophie has not completed form NRL1 and basic rate tax has not been deducted, she must inform 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 2023 she must notify no later than 5th October 2023.
HMRC have produced form SA1 to enable taxpayers to notify that they have a liability.
Before 31st October 2023 (optional)
If she wants to complete a paper tax return and/or HMRC to calculate her tax liability, the paper 2022/23 Tax return must be filed by 31st October 2023.
There is a £100 penalty if the paper return (unless you are required to file a paper return) is filed after this date.
Before 31st January 2024
If she has not filed a paper tax return by 31st October 2023, she must file a tax return electronically by 31st January 2024 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.
Before 5th August 2024 and quarterly thereafter
As her gross rental income is in excess of £10,000, from 6th April 2024, Sophie will be required to keep digital records and report her income and expenses digitally to HMRC within one month of the appropriate quarter end.
What are Sophie’s tax liabilities?
Assuming that the income carries on at the same rate until at least 5th April 2022 and as she is not entitled to the UK personal allowance because she is an American citizen, her liabilities will be:
Tax Year Tax due
2022/23 £1,400 (7,000 @ 20%)
2023/24 £2,400 (12,000 @ 20%)
When is her tax due?
|Date Due||Tax Year||Tax Liability
|2022/23 Total Liability||1,400|
|2023/24 1st POA (1/2 x 1,400)||700|
|31st January 2024||2,100|
|2023/24 2nd POA (1/2 x 1,400)||700|
|31st July 2024||700|
|2023/24 balance 2,400 – (2 x 700)||1,000|
|2024/25 1st POA (1/2 x 2,400)||1,200|
|31st January 2025||2,200|
|2024/25 2nd POA (1/2 x 2,400)||1,200|
|31st July 2025||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 (CGT) on sales of residential property in the UK from 6th April 2015 and on sales of other property in the UK from 6th April 2019. An online return must be completed and the CGT must be paid within 60 days of completion of the sale.
What if you are late?
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.
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) 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.
Records you need to keep and Making Tax Digital
At present, you are required to keep records which accurately record your income and expenses. As indicated above, from 6th April 2024, the current legislation requires those with a gross rental income in excess of £10,000 to keep records digitally and report their income and expenses every quarter to HMRC within one month of the end of the appropriate quarter.
© Thandi Nicholls Ltd 2022 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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