Non-resident Landlords – Compliance for Non-Residents Holding a UK Property

Non-resident landlords – introduction

The UK’s track record of high returns on investment has always attracted non-resident investors for many years.

In addition, with increased global mobility, many of us spend extended periods of time working overseas and may even move with families abroad for a few years hence gaining the non-resident UK status.

The UK Government recently announced that from April 2019, UK tax will be chargeable on gains made by non-residents upon the direct or indirect disposal of all types of UK immovable property (extending the existing rules, introduced in 2015, relating to residential property). This will be regardless of the nature of the property or the residence of the disposing entity.

The objectives of the changes are to:

• More closely align the tax treatment of non-resident owners of UK immovable property with that of UK residents; and
• Reduce the incentive for multinational groups to hold UK property through offshore structures, often in low tax or no tax jurisdictions.

Once in the Non-Resident Capital Gains Tax (NRCGT) regime, one must tell HMRC within 30 days of completion of conveyance.

• You must report the disposal online using theNRCGT return within this deadline, even if:
• You have no tax to pay
• You have made a loss
• You are registered for Self-Assessment
• You are registered withHMRC for Corporation Tax
• You sendHMRC Annual Tax on Enveloped Dwellings (ATED) or ATED-related CGT returns

If a property was jointly owned, each owner must tell HMRC about their own gain or loss. Special rules apply if you give a UK residential property to your spouse, your civil partner, or to charity.

You might also have to pay any NRCGT due within the same 30-day period, although there are exceptions to the pay now rule if you already have an existing relationship with HMRC – for example, through Self-Assessment. If you do, you can either:

• Pay when you submit your return
• Defer payment until your normal due payment date

Calculating the NRCGT

There are three options for calculating the NRCGT:

• Rebasing – Use the market value as at 6 April 2015 as the cost basis of the property. This rebase allows for the uplift in value between the date of purchase and 5 April 2015. You will only pay capital gains tax in the UK on the gain that arises on the property between 6 April 2015 and the date of disposal.
• Straight-line time apportionment – The whole gain is calculated over the whole period of ownership. This is then apportioned into pre-6 April 2015 gains which are not taxed in the UK, and post 6 April 2015 gains which are taxed in the UK. An election will need to be made to claim this method of reporting and this is irrevocable
• No apportionment – You could choose to pay capital gains tax on the full gain in the UK. This is particularly useful if you want to establish an amount of loss on a property, or if there is loss up to 5 April 2015 and you want to set that against a gain from 6 April 2015.

The rate for NRCGT 19% for companies and 18% or 28% for individuals.

Non-Resident Landlord (NRL) Scheme 

The NRL Scheme was put in place in order to ensure that non-resident landlords pay tax on the rental profits of their UK property.

The NRL Scheme is a Scheme for taxing the UK rental income of persons whose ‘usual place of abode’ is outside of the UK. HMRC normally regard an absence from the UK of six months or more as meaning that a person has a usual place of abode outside the UK.

The Scheme places the obligation to collect and pay income tax onto either the tenant (where rents exceed £100 per week) or the letting agents where they are involved.

The basic rate of income tax will be deducted from any payments of rent to the non-resident landlord by the tenant or letting agent.

However, a non-resident landlord can apply to HMRC to receive their rental proceeds without deduction of tax via form NRL1. On successful application, the non-resident landlord may need to register for self-assessment in the UK and submit self-assessment tax returns. Currently a company pays income tax on its rental profits (at a rate of 20%), however, from 2020 corporates will pay corporation tax on their rental profits at a rate of 17%.

HMRC will also provide the tenant or letting agent with confirmation in writing that they are no longer required to deduct tax from their rental payments.

Non-resident landlords can offset the tax deducted from their UK rental income against their own tax bill when they complete their self-assessment tax return. Where the tax deducted by the agent is greater than the liability, the non-resident landlord may claim repayment of any excess.

Non-resident landlords – Tax returns

When you report the disposal, you can elect to pay any CGT you owe as part of your normal end of year tax payment for:

• Self-Assessment
• Corporation Tax
• CGT
• ATED-related CGT

You can also pay when HMRC sends you the reference number.

You must still fill in the capital gains section of your tax return for the year of disposal unless the gain is exempt due to Private Residence Relief.

If the disposal is also subject to ATED-related CGT, you must also declare the NRCGT on the ATED-related CGT return.

Amend your return

You might need to use estimated figures when you report a disposal to HMRC. If you have taxable UK income this may affect the rate of non-resident CGT you pay.

You must report the disposal of your property within 30 days of conveyance, so you might need to estimate your taxable UK income on your non-resident CGT return.

You can use the online form to send an amended non-resident CGT return showing your final figure.

You can make an amendment to your return up to 12 months after the Self-Assessment filing date of the year you’re making the return.

Non-resident landlords – Penalties

You have 30 days from the date of conveyance to report your disposal on the non-resident CGT return, and pay any tax due. A late filing penalty arises, and interest will be charged if you do not do this by the 30-day deadline.

If you miss the deadline by:

• up to 6 months, you will get a penalty of £100
• more than 6 months, a further penalty of £300 or 5% of any tax due, whichever is greater
• more than 12 months, a further penalty of £300 or 5% of any tax due, whichever is greater

If you have to pay any non-resident CGT within the same 30-day period, late payment penalties and interest may also be due if you miss the deadline.

If any non-resident CGT remains unpaid after 31 January after the end of the tax year of the disposal, a late payment penalty of 5% of the tax outstanding will be charged.

This article was in published in our May 2018 enewsletter.  To be added to our mailing list, click here and submit your contact details on our sign up form.