A non-UK resident will need to be aware of the UK tax implications of owning UK residential property. There are provisions in place for the taxation of UK rental income received by non-UK resident landlords and the sale of UK residential property is now charged to UK capital gains for non-UK residents. There are also additional tax considerations if the property is owned via a corporate structure.
An owner of UK residential property will need to pay tax on any rental income received. HM Revenue and Customs consider an individual who has lived outside the UK for 6 months or more as a non-UK resident landlord, in which case the Non-Resident Landlord Scheme would be applicable. Please note that this definition of non-resident is different from the Statutory Residency Test and applies for rental income only. It is therefore possible for an individual to be UK resident for a tax year when considering the Statutory Residency Test yet still be treated as a non-UK resident landlord.
The Non-Resident Landlord Scheme operates in one of the following ways:
- Landlords receive rent in full and pay any tax through a self-assessment tax return
In order to qualify for this option approval must be obtained from HMRC. HMRC will only consider approval if the landlord’s UK tax affairs are correct and up to date.
- Landlords receive rent with tax deducted
In this case the tenant or letting agent will deduct tax at the basic rate of income tax (currently 20%) from the rental income after allowing for any expenses they may have paid. The landlord must be provided with a certificate at the end of each tax year from the tenant or letting agent confirming the tax paid for that year. If there is no letting agent and the tenant pays rent of less than £100 per week then this option is not possible.
Capital Gains Tax
From 6 April 2015 new rules have been introduced for the sale or disposal of UK residential property for non-UK resident owners. If a sale or disposal takes place after 5 April 2015 then, as for UK owners, non-UK residents will be required to pay capital gains tax and report any gains or losses made on the disposal to HMRC.
Following the sale or disposal of a UK property, the non-UK resident owner will be required to complete and submit a NRCGT (Non Resident Capital Gains Tax) return to HMRC and pay any capital gains tax due within 30 days of the conveyance. If the deadline is not met HMRC will charge interest and penalties. The NRCGT Return will need to include details of the gain or loss made, the tax due and any exemptions or reliefs that are being claimed. The return must be submitted regardless of whether a gain or loss has been made and regardless of whether any UK tax is due.
There are three alternative methods when calculating the taxable gain. You should speak with an advisor as to which is best in your circumstances. Although a professional valuation is not compulsory, HMRC may raise queries into any valuations used.
Whether an individual is UK or non-UK resident for these purposes will be determined by the Statutory Residency Test. Therefore, at the time of the disposal of the property an individual may not be aware they will be non-UK resident for the tax year. In this case, the deadline for submission of the NRCGT return is 30 days from the day their non-UK residency is certain.
As discussed in our previous blog entry, non-UK residents are able to claim principle private residence relief, providing the necessary conditions are met.
The disposal of UK residential property for UK and non-UK residents is charged to capital gains tax at a rate of 18% if the gain falls within the available basic rate band and 28% for higher and additional rate taxpayers. The annual allowance, which is currently £11,100, is available for both UK and non-UK residents. When submitting the NRCGT return the individual will need to estimate their UK taxable income to determine the rate of capital gains tax to be used. Provided the estimate is reasonable then HMRC are unlikely to charge penalties if it is does end up being inaccurate. If an amendment is required this can be done within 12 months following the end of the tax year in which the disposal is made.
All UK residential property is within the charge to UK inheritance tax, regardless of the residency or domicile of the individual owner. To the extent that the value of the property on death exceeds any reliefs and the available nil rate band (which is currently £325,000) UK inheritance tax will be due at the current rate of 40%. In certain circumstances the additional residence nil rate band may also be available.
Ownership through a Corporate Structure
Historically, an individual may have considered purchasing UK residential property through a corporate. However, with the introduction of the Annual Tax on Enveloped Dwellings (ATED) in 2013 and the proposed changes to the taxation of non-UK domiciled individuals to be introduced in April 2017 this may not be appropriate. In addition, stamp duty land tax applies at a higher rate of 15% when the purchaser of UK residential property is a company.
Further comments on this are beyond the scope of this article, however individuals considering this should contact their tax advisor.
Whilst every effort has been made to provide information current at the date of publication, tax laws around the world change constantly. Accordingly, the material should be viewed only as a general guide and should not be relied on without consulting your local KPMG tax adviser for the specific application of a country’s tax rules to your own situation.