Andrew Baker - Taxation Consultant
www.baktax.com
UK tax advice for residents worldwide – including Non-Resident Landlords, Pilots, Aircrew, Seafarers, Yacht Crew and Non-Doms
Telephone:
+44 (0)1243 582926
Mobile: +44 (0)7795671536
Email: baktax@aol.com
Non-Resident Landlords
Overseas and Non-Resident Landlords
Overseas and Non-Resident Landlords
If you decide to let your UK property whilst you are overseas, it will be necessary for you to keep records of the rental income and expenditure to demonstrate whether you have made a profit or a loss, therefore, it is recommended that annual letting accounts are prepared in line with the tax year.
Up to 5th April 2017, HMRC were prepared to accept letting accounts as being prepared on a "cash basis" (rents received and expenditure incurred during the tax year), provided the gross rents were less than £15000 per annum. Where the gross rents were £15000 or more, the statutory "earnings basis" (rents and expenditure relating to the tax year concerned, whether received/paid during that tax year) was to be used.
However, from 6th April 2017, the limit has increased tenfold. The "cash basis" is to be the default method to establish the profit/loss for the tax year, where the gross rents are less than £150000.
Any profit made is taxable, subject to the availability of claiming personal allowances, whereas losses can be carried forward and offset against rental profits made in future years, all the while the "rental business" is continuing.
Bank statements, letting agent statements, invoices, receipts and annual mortgage interest certificates should be kept in support of the income and expenditure figures, in case HMRC request sight of them as evidence. With HMRC's introduction of "Making Tax Digital for Income Tax and Self Assessment", these records are also required to be kept digitally using approved bookkeeping software and filed with HMRC on a quarterly basis. This follows the abolition of the self assessment tax return and applies to all landlords where the gross rental income exceeds £10000 per annum. Where the rental property is jointly owned, the £10000 threshold relates to each individual landlord’s total share of the gross rents and not the total gross rents from the individual property (or properties if there is more than one).
For businesses who are registered for VAT, quarterly reporting started from 6th April 2019. For sole trader businesses and landlords, quarterly reporting for income tax has been delayed further and is not now due to commence until the tax year starting 6th April 2024. For general partnerships, the start date MTD for ITSA has been delayed until 6th April 2025.
Wear and Tear Allowance
For property let on a fully furnished basis, currently an annual 10% wear and tear allowance can be claimed for furnishings which is generally more advantageous than claiming for replacement items. The initial purchase of furniture cannot be claimed.
However, the 10% wear and tear is to be abolished from 6th April 2016 and instead the cost of replacement furnishings can be claimed as and when they arise.
Currently, the cost of replacing free-standing items in a property e.g. white goods, carpets/curtains etc. cannot be claimed where a property is let on an unfurnished/partly furnished basis. However, this will change from the 6th April 2016 in line with fully furnished let property.
Rent-a-Room
The rent-a-room allowance of £4250 increasing to £7500 from 6th April 2016 (£2125/£3750 each for a couple owning the property jointly) is only available if you reside in the property where rooms are let out. Therefore this allowance is not available to those who are not-resident and living overseas.
This is a useful allowance to claim for individuals who qualify, as this will save the need to retain receipts and claim expenses when completing their tax return, provided it is more tax advantageous to do so. However, the Government are to launch a consultation in the summer of 2017 with a view to supporting long-term lodgings rather than short-term lodgings such as Airbnb, which did not exist when the rent-a-room allowance was originally introduced.
Property Allowance
From 6th April 2016, a new fixed allowance has been introduced of £1000 and, if more beneficial, can be deducted from the gross rents rather than claim the actual expenses incurred. This is designed for those who have small gross rental income and is only advantageous where the actual expenses are less than the £1000 allowance. However, it gives the opportunity to receive up to £1000 gross rental income tax-free e.g. from short weekend lets or letting of parking spaces advertised over the Internet.
Furnished Holiday Lets
With effect from 6th April 2012, for a letting in the UK or an EEA country to qualify as a furnished holiday let, whereby the profits qualify as net relevant earnings for pension purposes etc., the property has to be available for letting for 210 days in the relevant period (previously 140 days) and actually let for 105 days in the relevant period (previously 70 days).
Longer periods of occupation i.e. longer than 31 continuous days must not exceed 155 in total during the relevant period otherwise it will be treated in the same way as any other furnished let property.
Already effective from 6th April 2011, losses from furnished holiday lets can now only be offset against profits from the same furnished holiday let business (previously losses could be offset against other general income).
Abolition of Furnished Holiday Let Rules
However, the tax rules for the treatment of furnished holiday lets have been abolished with effect from 6th April 2025. From this date the same rules as for other rental property are to apply.
Non-Resident Landlord Scheme Approval
If you let your property through a letting agent or directly to the tenant at a rate of more than £100 per week, and are outside of the UK for at least 6 months of the tax year, 20% basic rate tax will be deducted and paid over to HMRC. Although credit can be claimed for this on your self-assessment tax return, it is advisable to apply under the Non-Resident Landlord Scheme for an approval certificate so that the rent can be paid to you gross without the tax deduction. This helps with cash flow and gives you time to claim certain expenses of which your agent or tenant would not necessarily be aware, eg mortgage interest, at the end of the tax year.
Mortgage Interest
A major change being gradually introduced from 6th April 2017 is the way mortgage interest (and other financial costs) is to be relieved against rental income. Instead of claiming the gross interest in the letting accounts, tax relief will be given in the tax computation but restricted to 20%, the aim being to stop higher rate taxpayers from gaining an advantage of receiving 40% / 45% tax relief.
- For the 2017/18 tax year, 75% of the mortgage/loan interest can be claimed in the letting accounts with the other 25% of the interest being restricted to tax relief at 20% in the tax calculation.
- For the 2018/19 tax year, 50% of the interest will be claimed in the letting accounts and 50% restricted to tax relief of 20% in the tax calculation.
- For the 2019/20 tax year, 25% of the interest will be claimed in the letting accounts and 75% restricted to tax relief of 20% in the tax calculation.
- From 2020/21 the interest will be restricted in full to 20% tax relief in the tax calculation.
The handling of the non-resident landlord approval applications together with the preparation of annual letting accounts and
self-assessment tax returns
is a service we would be delighted to provide for you. Please contact us for a fixed fee quote for this tax compliance service.