As January draws to a close taxpayers need to take note of the upcoming UK online tax filing deadline on the 31st. For those who are owners and landlords of property in Britain there are specific responsibilities and tax obligations to take note of, even if you are not based in the UK yourself. Below we break down what you need to know for the close of the 2022/2023 tax season.
Are you obligated to pay tax in the UK as a non-resident?
Non-UK residents are required to pay taxes on any income made within the UK’s borders during the tax year, and this is applicable to gains made from property ownership. Property owners need to pay tax regardless of where they are living or whether the property in the UK is being rented or sold.
If you are issued a tax return by HMRC (His Majesty’s Revenue and Customs) and you have sources of taxable income or chargeable capital gains tax (i.e. property rent and sales) within the UK, you are required to provide the relevant details and assessment. If you haven’t received one but know you need to file a tax return, you’ll still need to report it to the HMRC.
How to pay tax on your UK property rental income
There are two main options applicable, you can either pay the tax yourself through the self-assessment option before the 31st of January, or you can choose to have your letting agent or tenant deduct the tax from monthly rental payments throughout the tax year.
If you choose to pay tax on your rental income through self-assessment (the only current option available with the deadline looming) you need to fill in a NRL1i form online and send it back to HMRC. If your application is approved HMRC will tell your letting agent or tenant not to deduct tax from your rent and you’ll need to declare your income in your self-assessment tax return before January 31st.
Alternatively you can opt for your letting agent or tenant to deduct the basic rate tax from your rent received and give you a certificate at the end of the tax year saying how much tax they’ve deducted. This is referred to as the Non Resident Landlord Scheme and is not applicable to rent of £100 or less per week (or £5,200 or less per year).
What are UK rental income tax rates?
For the 2022/23 tax year landlords will be taxed at 20% on earnings falling between the personal allowance of £12,570 and basic rate upper threshold of £50,270, and 40% on any amount between that and £150,000. Earnings over £150,000 will be taxed at 45%.
Tax returns for non-residents can feel complicated as the tax you pay isn’t just based on your property specific income and capital gains, it’s based on all of your earnings. If you have a salary and other additional assets within the UK this will need to be reported and profit from your properties is then added to any other income earned. It is always imperative to consult a tax professional if you have any questions or uncertainty.
What are the late filing penalties?
Failure to file an assessment or pay taxes will result in penalties and other potential restrictions for landlords and property owners, so it’s important to adhere to filing deadlines. If the return is not filed by the due date (31 January 2024 for online assessments) there is an automatic non-refundable penalty of £100. When it is more than three months late, a penalty of £10 is imposed for each day the return is late, up to a maximum of ninety days. If the return is more than six months late, there will be an additional penalty of £300 or 5% of the liability, whichever is higher. There will be an additional penalty of £300 or 5% of the liability if the return is lodged more than twelve months after the deadline.
Contact a tax professional
Navigating UK rental and property-related taxes as a non-UK based landlord can feel daunting, so it’s important to ensure you receive professional advice and help if needed. Tailor my Property has a broad network of tax advisors and experts who can assist with specific requirements and questions tailored to your personal obligations and goals.