The United Kingdom is a hotspot for property investment. Thanks to its strong economy and business opportunities, buying property in the UK has always attracted many international investors. But, before making a financial commitment, it’s important to be familiar with taxes.
In this article, we’ll go through the property taxes for UK non-residents who want to buy property in the country.
UK Rental Income Tax for Non-Residents
If you rent out your property in the United Kingdom, you must pay tax on your rental income.
HM Revenue and Customs (HMRC) classifies you as a ‘non-resident landlord’ if you dwell abroad for six months or more each year, even if you are a UK resident for tax reasons.
Non-Resident Landlord Scheme (NRLS)
The NRLS is a scheme that taxes the rental income of non-resident landlords whose residence is outside the UK. The NRLS binds the tenant or the rental agency to certain obligations (if there is one). The tax year runs from April 1 to March 31 for the purposes of the NRLS.
To comprehend the NRLS, you must first realize that if you live outside of the UK yet earn money from renting out a property in the UK, this income is normally taxable in the UK, just like any other UK-sourced income. This is true regardless of whether you are a UK resident or a non-resident for tax purposes.
How To Pay Your Tax
There are two options:
- You can either opt to get your rent in full and pay the tax through Self-Assessment*
- Your rental agent or tenant can provide you with your rent with the tax already subtracted.
*depending on your eligibility by HMRC.
Even if there is no tax to pay, non-resident landlords are normally required to file a Self Assessment tax return. When you file your UK Self Assessment tax return as a non-resident landlord, you can deduct the amount withheld by the letting agent or the renter.
Getting Your Rent in Full
You’ll need to fill out form NRL1 and return it to HMRC if you want to pay tax on your rental income through Self Assessment. If your application is approved, HMRC will inform your rental agent or renter that tax will not be deducted from your rent, and you will be required to report your income on your tax return.
Note that if your taxes are not up to date, for example, if are late with your tax returns or payments, HMRC will reject your application.
Getting Your Rent With Tax Deducted
Your letting agent or tenant will do the following:
- Deduct basic rate tax from the rent
- Provide you with a certificate that shows the deduction amount
If you don’t have a letting agent and your renter pays you more than £100 per week in rent, the tax will be deducted from their rent payments.
How To Fill in Your Tax Return
Unless HMRC instructs you otherwise, you must declare your rental income on your Self Assessment tax return.
You can send your tax return either by post or through commercial software. Getting help from an accountant is also an option.
If you miss the deadline, which is earlier if you’re mailing your return, you’ll be penalized.
Companies and Trusts
If a company receives rental income from a UK property, it will be considered a non-resident landlord. It will also be considered a non-resident landlord if its main office/business premises is outside the country or it’s incorporated outside the United Kingdom.
If your company is a tax resident in the UK, it will get its rent in full. This includes UK branches of companies situated abroad that are registered for Corporation Tax.
If a trust obtains income from renting UK property and all trustees live outside the UK, it is referred to as a “non-resident landlord.”
UK Rental Income Tax Rates for Non-Residents
Appropriate structuring may help to lower the overall tax rate owed, and this is why we recommend you get professional advice but the following is the general tax rate of rental income:
- Individual non-resident property owners: 20 to 45 percent
- Non-resident company: 20 percent
- Non-resident discretionary trust: 45 percent
UK Capital Gains Tax for Non-Residents
If you sold or disposed of UK property or land before April 5, 2020, you must file a non-resident capital gains tax return.
If you’ve sold or disposed of any of the following in the UK since April 6, 2020, you must record and pay your non-resident capital gains tax:
- Residential property or land
- Non-residential property or land
- Mixed-used property or land*
- Rights to assets that derive at least 75% of their worth from land in the United Kingdom (indirect disposals)
*A property with both residential and non-residential aspects is known as a mixed-use property. A flat linked to a shop, a doctor’s surgery, or an office, for example.
You’ll need to pay non-resident capital gains tax if you’re:
- A non-resident individual
- A non-resident landlord
- The personal representative of a deceased non-resident
- A non-resident in a partnership
- A non-resident trustee
- A UK resident who meets split year conditions and you make the disposal in the overseas part of the tax year
You’ll have to report and pay within 60 days of completion of conveyance.
This information is not applicable to companies. As of April 6, 2019, all non-resident companies have been taxed corporation tax rather than capital gains tax on UK property or land gains.
The amount you’ll need to pay will depend on disposal of one of the below:
- A residential property in the UK since 6 April 2015
- A non-residential property or land in the UK from 6 April 2019
- Indirect disposal of land in the UK from 6 April 2019
Non-resident capital gains tax was imposed on direct sales of UK residential property from April 6, 2015. The charge’s scope was expanded on April 6, 2019, to include all direct and indirect disposals of UK property and land.
The ‘default’ position for residential property held on April 6, 2015, and disposed of on or after that date is that the gain on disposal will be based on the excess above the market value on April 5, 2015.
Disposal of property or land, or disposal of non-residential property which you owned before 5 April 2019, you can calculate your gain by using the market value at 5 April 2019. However, getting professional advice is strongly advised as tax issues can be complex.
Basic rate taxpayers will be required to pay an 18 percent CGT. For higher and additional rate taxpayers, the rate is 28 percent. The applicable rate will be calculated using the non-UK resident individual’s UK income levels for the tax year in question. They will be eligible for an annual CGT exemption.
The CGT charge for non-resident trusts will be 28 percent. They’ll also be eligible for exemption at half the rate of individuals. This is divided among trusts established by the same settlor.
Stamp Duty Land Tax (SDLT)
When you buy a home in England or Northern Ireland in your own name, you will have to pay SDLT.
Individual residential property purchases will be subject to the following standard SDLT rates:
|Up to £125,000||0% |
|Between £125,001 and £250,000||2%|
|Between £250,001 and £925,000||5%|
|Between £925,001 £1,5 million||10%|
|Anything over £1,500,001||12%|
If the UK property you are purchasing is in addition to another residential property you own somewhere else in the world, an additional three percent is added to the usual rate of SDLT.
If you are replacing your primary residence on the same day, the additional three percent tax will not apply.
Non-UK residents acquiring residential property in England and Northern Ireland have been subject to an additional two percent SDLT surcharge since April 1, 2021. This means that if you are acquiring a UK property that will not be your primary residence (i.e. you already own a home), you will be charged a two percent non-UK resident surcharge plus a three percent SDLT charge on the acquisition of additional residences.
Even if you have no plans of being a resident of the United Kingdom, you will be subject to inheritance tax if you purchase a residential property in the country. When a non-UK domiciled individual dies, inheritance tax is levied at 40 percent on the value of all of their UK-based assets (whether or not they are UK residents). In some cases, an individual’s debts may reduce the amount subject to inheritance tax.
The Bottom Line
Buying property is an exciting process. Once you find your dream UK home, being prepared for the future costs will save you money and effort. As tax obligations can be complicated, make sure you work with professionals who will advise you about your liability.