I am leaving the UK and want to let out my property. Do I have to file a tax return?

The short answer is “yes” non residents with rental income from the UK have been expected to file a self assessment tax return since April 2010.

You must first register with HMRC and submit a self assessment tax return annually unless HMRC notify you in writing that this is no longer necessary.

How do I register as a non resident landlord?

HMRC expect you to register as a non resident landlord by completing a form SA1.

The SA1 can be completed online and HMRC use it to open a self assessment record for you so a tax return can be completed.

Non resident landlord scheme

HMRC will typically class you as a non resident landlord if your usual place of abode is not in the United Kingdom and you receive rental income from a property in the UK.

The non resident landlord scheme (NRL scheme) deducts a 20% tax  on the rental income of landlords who do not reside in the UK.

UK letting agents or tenants are responsible for deducting tax from any rental income they collect on behalf of non resident landlords.

If you use a letting agent to collect your rent:

Letting agents who administer rent collection for non resident landlords must take off 20% tax from the rent before passing the rest on to you.

If you don’t use a letting agent:

As part of the NRL scheme your tenant needs to deduct 20% from the rent payable if the weekly rent exceeds £100. HMRC notifies tenants when this is necessary and of their responsibilities.

Your tenant or agent must provide you with an end of year certificate recording how much tax they have deducted in total. This refers to the end of the tax year, April 6^th.

Can I opt out of the non resident landlord scheme?

You can request to get your rent paid to you in full by your agent or tenant and only pay tax through self assessment by completing the HMRC form NRL1.

If your NRL1 application is accepted by HMRC your rental income will then be paid to you gross without any income tax deduction before you receive it from your rental agent or tenant.

HMRC will probably approve your application, as long as you are already fully up to date with all your tax affairs.

Then HMRC will inform your tenant or agent to stop deducting tax and pay you the entire amount.

You are then fully responsible for declaring this income and paying the necessary tax through self assessment.

How do I pay UK tax when I’m living abroad?

There are two ways to pay some or all tax on your UK property rental income when you are a non resident landlord:

1. You pay one tax bill in full after your self assessment tax return has been submitted.
2. Your tenant or letting agent will deduct basic rate tax from your rental income through the non resident landlord scheme. Depending on your level of taxable income in the UK the tax deducted may or may not be enough to cover your full tax liability.

Which way is best to pay non resident landlord tax?

Some non resident landlords find that by administering the tax on their rental income themselves, they can include far more allowable expenses and actually save on their tax bill.

All the things that your tenant or letting agent won’t be aware of can be deducted, like interest on a buy to let mortgage you took to initially buy the property.

Paying the 20% through your agent or tenant does seem like less hassle, but you still have to file a tax return and it can cost you more.

Non resident landlord tax return

Crucial information:

As a non resident landlord you cannot use the free HMRC online filing facility to complete and submit your self assessment tax return.

Your options are; employ a tax expert, buy the tax return software yourself or submit a paper tax return by post.

You must fill in Form SA109 ‘Residence’ section and Form SA105 ‘Property’ section on paper submissions.

Your deadline to submit by post is 31^st October, earlier than the online deadline of 31 January. There is a fine if you are late.

Overpayment of tax on rental income

You may be entitled to a refund of your tax paid if your total rental income is less than your personal allowance amount, or if your agent or tenant already paid tax on the rent before passing it on to you.

Any overpayment of tax is refunded after your self assessment tax return is processed by HMRC.