Where a non-resident landlord is not registered and approved by HM Revenue & Customs (“HMRC”) under the scheme, the landlord should suffer UK withholding tax at a rate of 20% on rents receivable in respect of any UK property.
Additionally, irrespective of whether the non-resident landlord is registered under the scheme or not, UK tax returns are technically still required to be submitted.
If your client received UK rental income in the 2018-19 tax year, they should ensure that their tax position has been determined as soon as possible and that their UK Self Assessment tax return, if applicable, is filed by 31 January 2020. SMP can assist with this tax filing.
Landlords Not Registered
The 20% rate of withholding tax should be deducted from the rent by the letting agent (if there is one) or by the tenant.
If no tax return is made, in practice the 20% withholding tax deduction can sometimes be treated as the final income tax liability. This often means that more tax is payable than is due because the withholding tax is generally applied to gross rents (there are some limited exceptions where payments of allowable expenditure are made either directly by the tenant or by the letting agent).
Any return subsequently submitted will enable a refund of tax if applicable subject to relevant time limits for a reclaim to be made.
As mentioned in the outline above, technically a tax return is still required. Where additional tax is payable, above the 20%, a tax return would be required. Failure to file a return in time can lead to penalties, interest, and in the most severe cases a criminal offence.
Landlords can apply to HMRC for approval to receive rents without the deduction of tax by the letting agent or tenant.
Approval will only be granted where the landlord:
- has ensured his UK tax affairs are up to date; or
- has never had any UK tax obligation; or
- does not expect to be liable to UK tax for the year in which the application is made.
A registered landlord is taxed on the net income (after available deductions) at a rate which is determined by the taxpayer’s status and level of other income.
Status Current Income Tax Rate
Company 20% flat rate
Trust Generally taxed at 45%
Individual 20%, 40% or 45% depending on the total level of taxable UK income
A return is required to be submitted annually by 31 January each year and will cover the year to 5 April preceding the deadline. The tax liability is payable in three stages. Two instalments (based on the prior year’s liability) are payable in equal amounts, firstly on 31 January in the year to which the return relates and secondly on 31 July following the end of the tax year. Any residual final liability is payable on 31 January following the end of the tax year, i.e. the same day as the filing deadline for the return.
Penalties apply for late filing and late payment and interest is charged on any outstanding tax.
Deadlines for Tax Year 6 April 2018 to 5 April 2019 (2018-19)
For the tax year that has recently passed, 6 April 2018 to 5 April 2019, the return is due by 31 January 2020. If your client was already in the payment on account regime, the first instalment payments would have been due by 31 January 2019 and 31 July 2019 with any final balancing payment due on 31 January 2020.
If 2018-19 is the first tax year your client has received rental income, then the first tax payment will be due by 31 January 2020.
If your clients have entities with UK property which is generating rental income, they should ensure that appropriate returns are filed and tax paid by 31 January 2020.
Restricting finance cost relief for individual landlords
From April 2017, tax relief for loan interest payable by individual landlords has been restricted on a gradual, phased-in basis, with the effect that by 2020 loan interest will not be an allowable expense but will instead attract tax relief at the basic rate of income tax (currently 20%). There have currently been no changes for corporate landlords who still get full relief.
Other important tax considerations for offshore investors into UK buy to let property
Alongside the taxation of rental income, there are several other UK tax matters that an offshore investor into UK buy to let property, and also UK property which is unlet, will need to consider. We do not detail these in this document but please see our website or sign up to our mailing list in respect of these areas:
- UK tax on gains made on disposals of UK property and property holding companies
- The Annual Tax on Enveloped Dwellings
- UK inheritance tax on directly held UK assets and UK residential property either held directly or through a trust or company structure
- Corporation Tax for corporate non-resident landlords from April 2019 for gains made on disposal of UK property/property holding companies and from April 2020 for rental income
- Stamp duty land tax
- Beneficial ownership register
Whether you’re purchasing, selling, letting, or looking for the best way to hold your UK property, both now and for future generations, the SMP Partners group of companies can provide bespoke tax, structuring, and compliance services tailored to your needs.
SMP Accounting & Tax specialises in providing bespoke property structuring advice and compliance services for High Net Worth Individuals and their advisers. SMP’s tax specialists have a wealth of experience advising UK residents (both UK and non-UK domiciled) and international clients on their property and personal tax matters.
SMP Trustees and SMP Partners provide specialist trust and company services for property structures and have extensive experience looking after family property, residential and commercial property portfolios, and buy-to-let property.
If you would like further information on any of the points discussed above, or would like to discuss any UK tax related matters with one of our UK tax specialists, please speak to your usual SMP adviser or one of the contacts listed below:
Tel: +44 (0) 1624 683 254
Tel: +44 (0) 1624 682 267