Understanding Your Tax Obligations as a Non-Resident Landlord in the UK
Tax Obligations Overview
As a non-resident landlord, it’s crucial to grasp your tax obligations when renting out property in the UK. The UK tax year runs from April 6th to April 5th of the following year. To ensure compliance, you must inform HMRC of your intention to file a tax return by October 5th following the tax year in which your income first arises.
Tax Obligations: Liabilities and Payments
If you have a tax obligation for a specific tax year (referred to as year one), these tax payments are due by January 31st of the following year (year two). Payments on account may apply, where you pay half of your year one tax liability by January 31st in year two and the remaining half by July 31st in year three, provided your tax liability exceeds £1,000. If your year two tax liability exceeds the payments on account made, you must settle the balance on January 31st in year three. It’s important to note that you can reduce payments on account if you anticipate a lower tax liability in year two.
Example Scenario
Consider Sarah, a non-resident landlord who started renting out her UK property in September 2022 for £15,000 with allowable expenses of £3,000 per year. She also has other UK income subject to the basic rate of taxation (20%). Her tax liabilities for 2022/23 and 2023/24 amount to £1,400 and £2,400, respectively.
Tax Deadlines for Sarah
Notify HMRC of rental income by October 5th, 2023.
Optionally, file a paper tax return by October 31st, 2023.
File an electronic tax return by January 31st, 2024, or face a £100 penalty.
Report digital records and income/expenses quarterly, beginning April 6th, 2024, and due by August 5th, 2024, with quarterly reporting thereafter.
Understanding the Tax Obligation: Capital Gains Tax on UK Property Sales
Non-residents became liable for Capital Gains Tax on UK residential property sales from April 6th, 2015. Furthermore, property sales of any type became taxable from April 6th, 2019. To meet this tax obligation, you must complete an online tax return and remit Capital Gains Tax within 60 days of the property sale.
Late Filing and Penalties
Failure to submit your tax returns by the due date will result in a £100 penalty. Additional penalties accrue for overdue returns, potentially reaching 100% of the tax owed. Interest is also charged for late payments. If you anticipate difficulty in paying on time, you should contact HMRC to arrange a suitable payment plan.
Digital Records and Making Tax Digital (MTD)
Maintaining precise records of income and expenses is of utmost importance. Starting from April 6th, 2024, landlords with gross rental incomes exceeding £10,000 must uphold digital records and report them to HMRC within one month of each quarter.
By understanding these tax obligations, non-resident landlords can ensure compliance with HMRC regulations when renting out property in the UK.
