Rental Income
All non-resident landlords should register with Non Resident Landlord Scheme to ensure that the rent is paid without the deduction of tax. Irrespective of your residence status or indeed country of residence income from UK property remains liable to UK income tax.
Expenses that are incurred wholly and exclusively for the “business” of renting the property are usually allowed as a deduction against the rent receivable. Usually, loan interest is allowed where the loan has been taken to purchase the property or replace an existing debt but care is required as there is a greater restriction.
Tax Returns, Record Keeping and Penalties
Tax Returns must be submitted under the strict Self Assessment deadlines and usually online. It is a Penalty offence not to retain accurate records.
If you fail to notify a liability, submit a timely Return or pay your tax on time automatic penalties, surcharges and interest will accrue. The current penalty regime means that penalties of up to 200% of any over due tax can be charged. In addition to the automatic £100 penalty, a tax return that is 6 months late could lead to penalties of £1,300.
Ownership Structures and Tax Free Personal Allowances
By far the simplest way to own a property is to purchase it in your own name. However, trusts and non UK resident companies can have significant Income and Inheritance Tax advantages.
Against this the government have introduced additional taxes for properties that are owned by non natural persons and/or valued in excess of £2million. They have also proposed the extension of capital gains tax to properties owned by non natural persons (broadly but not exclusively non resident companies and trusts) even if the ultimate owners are not resident in the UK.
Professional advice should therefore be sought about how to structure the ownership of UK property.
Capital Gains Tax
From 6 April 2015 non residents are within CGT on the disposal of most residential property. It is possible to use the 5th April 2015 value (known as re-basing) as the cost in the tax computation, the actual cost of purchase or time apportionment. The one that is used depends on which is most advantageous but an election has to be submitted if you use one of the latter two.
All property disposals caught by the legislation must be reported within 30 days of exchange to avoid an automatic penalty. If you are in Self Assessment (SA) the disposal has to be reported again on your annual tax return. One advantage of being within SA is that any tax due is not payable until 31 January following the end of the tax year.
Principal private residence is another way of reducing tax Nevertheless there are a number of planning opportunities to safeguard your investment and capital gain.