Self assessment for overseas landlords

You are required to complete a self-assessment income tax return if you are a non-resident of the UK who happens to be letting out a property in the UK. In this brief overview, we aim to provide more clarity to oversea’s landlords to highlight the tax they are responsible for paying and the supporting documentation they will need to file in order to comply with HRMC.

Annually, the tax year runs from the 6th of April to the 5th of April the following year. As a taxpayer, it is your responsibility to notify HMRC that you will be preparing a tax return for the year in which the income first arises, by the 5th of October that follows.

If there are tax liabilities for a particular tax year (year one), they are due on the 31st of January of the following year (year two).

Payments on account

You must pay on account of year two half of your year one liability on 31st January in year two and one half of your year one liability on 31st July in year three if you owe more than £1000.

In the event that your liability for year two exceeds your payments on account, the balance is due on the 31st of January in year three (along with any payment on account expected for that year).

Your liability for year two will be refunded, along with a small repayment supplement, if your liability is smaller than the previously made payment on account.

Payments on account can be reduced if you think your tax liability will be lower in year two and you submit a claim declaring this. It is worth being sure of this though as in the event of underpayment, interest is charged.

Let’s explain by way of an example:

After working in Australia for several years, Jennifer rented out her property in the UK in September 2022 for £15,000 with allowable expenses of £3,000 per year.

Besides the property income, she has other UK income which is not liable for PAYE deductions but is subject to her personal allowance, so her income will be taxed at the basic rate (currently 20%). Therefore, she has never filed a self-assessment tax return previously.

What are her responsibilities?

In light of Jennifer’s status as a non-resident, her managing agent or tenant (in the absence of an agent) must deduct tax at the basic rate and remit it to HMRC. Jennifer will need to register with HMRC using form NRL1 if she wishes to receive her income gross without deduction of tax.

Before 5th October 2023

Within six months of the end of the tax year, Jennifer must have informed HMRC that she has a source of untaxed income if she has not completed form NRL1 for the relevant tax year. Jennifer must notify HMRC of her first rental income profits by 5th October 2023, since she will have received these monies in the tax year ending 5th April 2023.

For taxpayers to notify HMRC that they have a liability, form SA1 has been developed. Likewise, form SA1 is also used for those who have become company directors or who have received annual income from trusts and settlements.

Before 31st October 2023 (optional)

Paper tax returns for 2022/23 must be filed by 31st October 2023 if Jennifer wants HMRC to calculate her tax liability.

If the paper return is filed after this date (unless you are specifically requested to file a paper return), there is a £100 penalty levied.

Before 31st January 2024

If she fails to file a paper tax return by 31st October 2023, she must submit an electronic tax return by 31st January 2024 or she will be subject to a penalty of £100. There may be circumstances where certain individuals (such as politically sensitive individuals) cannot file electronically, in which case they must file a paper return instead. It is generally not possible to file a tax return electronically from overseas, so you would need to arrange for a specialist tax accountant to do so for you.

Before 5th August 2024 and quarterly thereafter

Since Jennifer’s gross rental income is above £10,000, she will have to keep digital records and report her income and expenses to HMRC after the end of each quarter starting from the 6th April 2024.

What are Jennifer’s tax liabilities?

Due to her status as an American citizen, she cannot claim the UK personal allowance, so her liabilities are as follows:

Tax Year          Tax due
2022/23             £1,400          (7,000 @ 20%)
2023/24             £2,400          (12,000 @ 20%)

When is her tax due?

Jennifer’s payments would remain at £1,200 on 31st January and 31st July each year if her income and tax liability remained the same. Although this is unlikely to occur in practice, if income levels are comparable from year to year, payments in January and July should be similar after the first three years.

Capital Gains Tax

From the 6th April 2015, non-residents became liable for Capital Gains Tax on residential property sales in the UK and on any other type of property sold from the 6th April 2019. Within 60 days of the sale of the property, an online tax return must be completed and Capital Gains Tax must be paid.

What if you are late?

In the event that the return is not filed by the due date (usually 31st January following the end of the tax year), a non-refundable penalty of £100 is automatically imposed. These penalties will be waived if there is a reasonable excuse given for the delay.

The would-be submitter of any overdue returns are fined £10 per day for up to 90 days if these returns are more than three months overdue.

There will be a further penalty of £300 or 5% of the liability (whichever is a higher sum) if the return is more than six months late.

There will be another penalty of £300 or 5% of the liability if the return is filed more than twelve months after the filing deadline (i.e. 22 months after the end of the tax year) as well as the penalty for the previous 31st July. Serious cases may result in a penalty of up to 100% of the tax owed.

You will be charged interest if you fail to pay on time. In addition, if the liability for the previous tax year is not paid by 1st March following the tax year, and then by 31st July following that tax year, an additional 5% late payment penalty will apply each time. Thirdly, there will be yet another late payment penalty levied if you don’t pay the tax owed by 31st January of the following year.

What you do if you cannot pay?

Contact HMRC and try to arrange a payment plan. The number for HMRC’s Business Payment Support Service Helpline is 0300 200 3835.

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