Tax returns and your responsibilities as a non-resident landlord

You are required to complete a UK self-assessment income tax return if you are a non-resident of the UK and you are letting out a property in the UK. In this guide we aim to provide non resident landlords with the guidance they need in order to better understand their given situation.

It is worth noting that each year, the tax year runs from the 6th of April to the 5th of April the year after. It is your responsibility to inform HMRC that you want to prepare a tax return by the 5th of October following the end of the tax year in which the first income has arisen.

The 31st of January in year 2 is the due date for paying taxes due for a particular tax year (year 1).

Payments on account

It should be noted that if your liability for year 1 exceeds £1000 (excluding any payments you need to make towards your student loan), then you will be required to make payments on account of year 2 of one half of the liability for year 1 on 31st January in year 2 and one half of the liability for year 1 on 31st July in year 3.

If your liability for year 2 exceeds the payments that you have made on your account, then the balance of your liability will be due on 31st January of year 3 (along with any payment that you have made on your account for year 3).

Payments on account will be refunded and a repayment supplement will be applied if your liability for year 2 is less than the payments made on account.

Your payment on account can be reduced if you believe your tax liability in year two will be lower than in year 1. You will, however, be charged interest if you are found to have underpaid.

Let’s explain by way of an example:

In September 2022, Sophie, an American citizen who was working in Australia for a number of years, decided to let her property in the UK for £15,000, with allowable expenses of £3,000 annually.

Since she has other UK income which is not liable for deduction of tax under PAYE but is taxed at the basic rate (currently 20%), the income from the rental property will also be taxed at that same rate.

Having never filed a self-assessment tax return before, she was not sure what to expect.

What are her responsibilities?

Taking into account that Sophie is now a non-resident, Sophie’s managing agent or tenant (in the event that there is no agent) must deduct and remit the tax to HMRC at the basic rate. Sophie will need to register with HMRC using form NRL1 in order to receive her income gross without the deduction of tax.

In the case of couples, each partner needs to fill out the form separately. Upon receiving notice from HMRC, the tenant or agent will then be informed that no deductions will be required to pay tax.

Before 5th October 2023

In the case that Sophie hasn’t completed form NRL1 and basic rate tax has not been deducted, she must inform HMRC within six months of the end of the relevant tax year that she has an untaxed income. Due to Sophie’s rental income profits being received first in the tax year, she must notify HMRC no later than 5th October of the relevant tax year.

In order to relieve taxpayers of the burden of notifying HMRC that they are liable for tax, HMRC has developed form SA1.

Before 31st October 2023 (optional) 

It is required that Sophie file her paper tax return for the year 2022/23 by 31st October 2023, if she wishes HMRC to calculate her tax liability. If you file your paper return after this date, you will be subject to a penalty of £100.

Before 31st January 2024 

Sophie must file an electronic tax return by 31st January 2024 if she does not file a paper tax return by 31st October 2023 she will be liable for a penalty of £100. Depending on the circumstances, there may be certain individuals (for example, political sensitive individuals) who are not allowed to file electronically by this date and therefore will have to file a paper return instead. If you are filing a return from overseas, it is usually not possible to file it electronically so you will need to arrange for us (or someone else in the UK) to submit the return on your behalf.

Before 5th August 2024 and quarterly thereafter

From 6th April 2024, as Sophie’s gross rental income will exceed £10,000, she must keep digital records and report her earnings and expenses to HMRC electronically within one month of the end of each quarter.

What are Sophie’s tax liabilities? 

Due to her American citizenship, she is not entitled to the UK personal allowance, so her liabilities will be 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?

Her payments on account would remain the same at £1,200 on 31st January and 31st July each year thereafter if Sophie’s income remained the same and her tax liability remained the same also. The likelihood of this happening, in reality, is low, but if the income levels are similar year to year, the payments in January and July will likely be similar after three years.

Capital Gains Tax

The sale of residential property in the UK by non-residents will trigger the need to pay capital gains tax (CGT) from 6th April 2015 and the sale of other property types will trigger CGT from 6th April 2019. Upon completion of the sale, the seller must complete an online return and pay the CGT within 60 days.

What if you are late? 

Failure to file a tax return by the deadline (usually the 31st of January following the tax year) incurs an automatic non-refundable penalty of £100. A reasonable excuse would be accepted as grounds for waiving the penalties.

Overdue returns that reach over three months are penalty-charged £10 for every day that they are late up to a maximum of 90 days.

In the event of a return being submitted more than six months late, then a further penalty will be imposed of £300 or 5% of the tax liability, whichever is the greater amount.

There will be an additional 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. In serious cases, it may be possible for the penalty to reach 100% of the tax due if the offence is deemed serious enough.

In the event that you do not pay penalties on time, interest will accrue on any amount paid late. In addition, if the liabilities for the previous tax year are not paid by the 1st March following the previous tax year, a 5% late payment penalty will be imposed, as well as a further 5% late payment penalty if the payments are not made by the 31st July. The third late payment penalty of 5% will be applied if the tax is not paid by the 31st of January of the following year.

What you do if you cannot pay?

The best thing you can do is to try and make an arrangement with HMRC. It is recommended that you contact the Business Payment Support Service Helpline at 0300 200 3835.

Records you need to keep and Making Tax Digital

You are required by law to keep records that reflect accurately your income and expenses at the time of submitting your tax return. Nevertheless, as it has been indicated above, from the 6th of April 2024, property owners with a gross rental income in excess of £10,000 are required to keep digital records of their incomes and expenses and to report them to HMRC every quarter within one month of the end of the relevant quarter.

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