When Renting Out Your UK Home After You Emigrate
Being a landlord as a non-resident requires preparation which needs to be addressed before you leave. We hope our guide will help you. At Haskew Law we do not just secure your visa we assist with every aspect of life as an expat with global assets in various jurisdictions.
If you have decided to sell your UK assets prior to emigrating you can speak to us first to ensure you minimise your exposure to HMRC and protect your estate, Haskew Law has unique expertise in managing global wealth management and estate planning.
When moving abroad, many expats prefer to keep ownership of their primary home in order to generate an income by renting out their UK home.
If you are moving abroad, or maybe you’re already a non-UK resident and are considering renting out your home, there are a number of factors you need to take into consideration, both now and in the future which we aim to discuss on this page.
Alternatively, if you decide to eventually sell your home while living abroad Haskew Law can assist you with the conveyancing, estate planning and other factors you will need to consider to ensure your receive the maximum return and avoid CGT and other taxes both in the UK and offshore. Our unique expertise is used by hundreds of expats to look after their UK based properties.
Managing your property and tenants
When renting out your home, you have a choice about whether you manage the property yourself from abroad, rely on friends/family to manage the property or find a property management agency who can manage your property for you.
If you choose to manage your property yourself, while you can save considerable costs, it can be considerably stressful. Things which you’ll need to consider include finding/replacing your tenants, being able to manage any repairs, being mindful of your tax residence status by returning home to manage your property.
By choosing a friend or family member to help you rent out your home, you are placing the responsibility and stress across a relationship which can cause tension. They may not be capable of effectively managing your house, and this could lead to you having to manage the property anyway.
The final option is to find a letting agent who is skilled in managing the property. Typically the agency will charge a fee of between 10% and 15% of your rental income over the year in exchange for offering an intermediary service which ensures that the property is well maintained, there are tenants and also that rent is collected in a timely fashion.
We can act as your UK management agent regardless of the size of your property portfolio and while managing your property we understand your specific needs as an expat and non-resident landlord.
Tax considerations when renting out your home
Essentially any income which you receive from renting out your home is considered a UK income, and you will therefore be subject to UK income tax from rent received, if it surpasses the personal allowance level of £10,000 (as of April 2014). The government is also reviewing whether non-UK residents will receive a tax allowance, although it is currently still in place.
Non-Resident Landlord Scheme
The Non-Resident Landlord Scheme has been set up by HMRC to tax non-UK residents who are renting their UK home.
Through the scheme, if weekly rent exceeds £100 tax must be deducted from the rental income by either the letting agent or, if there is no letting agent, the tenants themselves before the rent is paid to the landlord.
However, a non-resident landlord can apply to have their rent received without tax deducted. If successful, the income is still subject to tax and therefore must be declared in the annual Self Assessment tax return. We can assist you prepare before you leave.
When renting your UK home, your tax residence status is an important factor to take into consideration. If you intend to become and remain a non-UK resident, there are strict rules about how much time you are allowed to spend in the UK.
Just because you no longer live in the UK, it does not automatically mean that you are a non-UK resident. This will be determined by the Statutory Residence Test which the HMRC introduced in 2013 and incorporates, among other factors, the time you’ve spent in the UK in the current and previous tax years.
Depending on how you intend to manage your UK property will impact on how much time you will need to spend in the UK to manage tenants, conduct property improvements and other unforeseen circumstances.
Before you make any decision about how to manage your UK home, it is vital that you speak to our tax adviser to ensure that you understand what you travel restrictions are, and how they might impact your residency status in the UK.
Managing your mortgage
If you have a mortgage on the UK home you intend to rent, it is important that you contact your mortgage provider and inform them about your intentions, before you make any decisions. Moving abroad and renting your home could see you in breach of your loan agreement, which could see your home repossessed.
Once living abroad, many expats decide to purchase a property in the UK and therefore require a UK expat mortgage, often buy-to-let. We have people on hand ready to assist you now or in the years to come.
As an expat, this is feasible, however, the process is made substantially easier if you have a track record of having a UK mortgage already. It may, therefore, be sensible to keep a small mortgage on your UK property and pay small amounts to ensure you have a track record in the UK.
Currency and foreign exchange
Over recent years currency fluctuations between the pound, euro and dollar have meant that non-residents receiving an income by renting their UK home have been seen their real income change dramatically.
Most rent will be paid in sterling into a UK bank account, while non-UK resident landlords typically need to access the money in a different currency.
If you are considering renting your UK home, this is an important factor to consider.
One method of mitigating the risk is to open an account with a UK currency transfer company, rather than transferring money to a foreign bank account, to reduce charges and also receive a better exchange rate.
Expat landlord insurance
When renting your UK property, it is important to have the right expat landlord insurance in place.
Ensuring your property is fully covered before you leave the UK is essential if you are planning to live or work abroad and will be are too far away to regularly check your property. It can also be difficult to find the right insurance policy, which isn't financially out of reach.
If you are renting your UK property, then a landlord’s UK property insurance for Expats policy should include the following cover:
- buildings and contents;
- rent arrears;
- potential legal costs with contract disputes and repossessions;
- malicious and accidental damage.
Get expert independent advice when renting out your home
If you are considering renting out your home it is essential to get expert advice about each of the considerations discussed here. At Haskew Law we have the expertise to assist you.
UK's Non-Resident Landlord Scheme
Since 1995 HM Revenue & Customs (HMRC) have operated the non-resident landlord scheme (NRLS) which collects the tax payable on rental income received by non-resident landlords at source as a withholding tax. This means that the obligation to pay the tax rests either with the UK letting agent (who collects the rent) or with the tenant. Here are ten things you need to know about the scheme.
The basic position is that these people must pay the rent to the non-resident landlord net of UK tax. However, under the NRLS the non-resident landlord can apply to HMRC to be paid their rental income gross. Here we examine the application of the scheme and how it works:
- If a property is owned in the UK then the income generated from it will attract UK tax. This is the case even if the property owner is not a UK citizen or has a usual place of abode outside of the UK. An individual is normally regarded as having a 'usual place of abode outside of the UK' if they are absent from the UK for six months or more. This test is different to the UK residency test, meaning that someone can be a UK resident but also a non-resident landlord.
- If a company has their main office or other place of business outside of the UK, or is incorporated outside of the UK then this normally means that they have a usual place of abode outside of the UK. Companies regarded as resident for UK tax purposes will not normally be non-resident landlords.
- If the landlord is non-resident then the tenant or the letting agent is required to account for the tax on the rent. The rate of tax is the basic rate of income tax (which is currently 20%) of the rental income, less certain allowable expenses. The NRLS imposes filing requirements on the letting agent, or if there is no letting agent, then the filing requirements are imposed on the tenant.
- The NRLS also allows the landlord to apply to HMRC so that the landlord can receive the rental income gross, without the tax deduction. A landlord's application will only be successful if: their UK tax affairs are up to date, meaning that the landlord has paid all UK tax for which it is liable; or they have never had any UK tax obligations, or they do not expect to be liable to UK tax for the tax year in which the application is made. If the landlord is successful in its application to be paid the rent gross, it will still remain subject to UK tax on the rental income received. However, it will mean an improved cashflow and responsibility for its own UK tax affairs. A tenant or agent is only permitted to pay rental income to a non-UK resident landlord without deduction of tax once it has received written approval from HMRC to do so. Therefore it is important that a landlord makes any application under the NRLS promptly and certainly before the next rental payment date.
- Tax is calculated at the basic rate on rental income less any deductible expenses. The tenant or letting agent within the NRLS can deduct any expenses which they are reasonably satisfied are deductible from the profits of a property rental business, provided that the tenant or agent has actually paid those expenses. If the withholding tax is greater than the actual tax liability, the landlord should be entitled to a refund from HMRC when they submit their UK tax return.
- The tax is payable by the tenant or letting agent on the usual quarter days. The quarterly tax return must arrive at HMRC within 30 days of the end of the quarter.
- An annual return must be provided to HMRC by 5 July each year for the year to 31 March showing the amount of rental income before deductions, the total deductions made and the total tax paid in the quarterly returns for that year.
- If the tax is paid to HMRC, the letting agent or tenant must provide the landlord with a certificate by 5 July following the end of the year to 31 March. This certificate must include the landlord's total liability to tax for the year ending 31 March.
- Financial penalties which may be incurred under the NRLS include the following: failing to make an annual return or for making an incorrect annual return (up to £3000) and failing to make records available for inspection or failing to provide information (up to £300 plus £60 per day if the failure continues).
- Interest may accrue on tax unpaid by letting agents and tenants from the date when the tax should have been paid until the date when the tax is actually paid. Interest will also accrue on the late payment of tax, which should be accounted for on the relevant quarterly return to which the rental income relates.
Advice should be sought from Haskew Law by those planning to become a non-resident landlord or persons who think they may be a non-resident landlord, tax advice should be sought before accepting any rent derived from UK property. Be protect from current HMRC taxes and penalties and stay ahead of any future changes to the scheme.