The United Kingdom is one of the most sought-after places in the world for buy-to-let properties, and it is seen as a primary method for bricks and mortar investment. London, in particular, attracts investors from all around the globe who are looking to increase their long-term capital while boosting short-term income.
If you’re based overseas and decide to purchase a buy-to-let property with the intention of renting it out, you will become a non-resident landlord. This is when you own property in the UK but reside in another country.
Non-resident landlords can do very well with the London buy-to-let market, where property prices and rents continue to rise. However, tax rules around owning rental property in the UK differ for non-resident and resident landlords.
If you currently live in another country and are thinking about purchasing a property in the UK, read on to discover everything there is to know about being a non-resident landlord.
What is a non-resident landlord?
A property investor who spends less than six months in any tax year in the UK is considered to be a non-resident landlord. The number of non-resident landlords in London accounts for just over 10% of the buy-to-let market, which is a significant proportion.
You’re also considered as a non-resident landlord if you own a company that rents out a property in the UK but has a registered office or primary place of business in another country. Or if you are a member of the armed forces or Crown servants, such as a diplomat who is positioned overseas for work.
A non-resident landlord in a snapshot
- Spends less than six consecutive months in the UK
- A company letting a property that is registered outside of the UK
- A member of the Crown servants or armed forces
How can a non-resident landlord buy property in the UK?
Buying property as a non-resident landlord is a similar process to domestic sales. Meaning, you will be going through the same sales system. The process for buying is reasonably straightforward in the UK, with transactions taking an average of 90 days.
- Identify a property
- Make an offer and have it be accepted
- Get finances in place (either with a mortgage or personal funds)
- Arrange for conveyancers to conduct a property check to confirm its condition
- Employ solicitors to handle the legalities
- Set a date for the exchange of contracts
- Complete transaction
It is also worth noting that plans are tentatively in place for a 3% stamp duty surcharge for all non-UK tax residents who are purchasing a property, whether they’re a company or individual. However, no dates have been set for when the change will come into effect.
Once the sale is complete, you can start letting the property to prospective tenants, and therefore generating income in the process. As far as your status as a non-resident landlord goes, at this point there is no major difference between yourself and a national landlord.
When you have let your property, however, the rules change for non-resident landlords — especially when it comes to tax.
Non-resident landlord tax implications
There is an overriding difference around taxes and how a property is let for non-resident and national landlords. Many non-resident landlords believe they don’t need to pay UK income tax on property earnings as they are already a tax resident in another country.
Unfortunately, this is incorrect, and the UK has first rights to taxable income from real estate located on its land. However, if the non-resident landlord is liable to pay tax on the income of their UK property in another country, they can claim credit for the UK tax against foreign tax charged on the same income in their country of residence.
Current tax thresholds for tax in the UK:
- 20% on earnings up to £37,500
- 40% on earnings from £37,501 to £150,000
- 45% on earnings over £150,000
Letting agents, tenants or anyone else securing renters on behalf of the overseas landlord will need to pay tax on any rent due to the landlord. That is, unless it is explicitly stated by the HM Revenue and Customs (HMRC) not to do so. For instance, they do not have to do this for national landlords.
UK-based letting agents
There is no lower rent limit for letting agents who source renters for non-resident landlords and receive rent on their behalf. As a result, they should withhold 20% tax on any rent received. They would also need to file an annual return to HMRC, declaring the amount of rent they have collected on behalf of the landlord.
Tenants
Tenants who pay rent that amounts to less than £100 a week to a non-resident landlord directly (or to a third-party) that isn’t an official letting agent won’t need to withhold any tax since it is below the threshold for the year. Anything over this amount, however, means tenants will also need to withhold tax from the non-resident landlord.
Whether the rental figure is above or below £100 per week, tenants still need to file an annual tax return to HMRC which declares how much they have paid in rent.
Tenant-finding services
Anyone finding tenants on behalf of the landlord that isn’t a UK-based letting agent won’t need to withhold tax on rents collected for the landlord. However, there are stipulations for this to come into effect:
- Any fees for securing tenants should be deducted from the rent collected directly
- The amount of rent collected is no more than three months in advance with tax due amounting to less than £100
How to avoid letting agents or tenants withholding tax via NRL1
The majority of overseas landlords register as a non-resident landlord with the HMRC, which means they can avoid a scenario where a letting agent or tenant has to withhold tax. By completing an NRL1 form with the Inland Revenue, non-resident landlords won’t need their letting agent or tenant to deduct tax beforehand.
Once an NRL1 application is accepted, the scheme allows for rental income to be paid without any tax being taken off beforehand. This doesn’t mean landlords are exempt from tax altogether. Instead, non-resident landlords must file a self-assessment tax return where rental income is declared.
The result means that you will pay tax by the deadline of January 31st each year, rather than it being withheld by the agent or tenant. Being part of the NRL1 scheme simplifies the process for non-resident landlords when handling their taxes.
Making the most of your UK investment property
Landlords must have all the necessary information on hand regarding buying a property in the UK. Failure to pay the correct taxes can lead to fines and, in the worst-case scenario, being sent to prison. Schemes like NRL1 make life easier for non-resident landlords, but you should hire an accountant so that you are clear on responsibilities surrounding tax.
Easy letting with Blueground
Blueground regularly works with overseas landlords in over 12 cities worldwide. We have experienced teams based in each city (including London) who are familiar with how to let properties in the local market — from furnishing a home to finding high-calibre tenants and providing all the necessary background checks.
Landlords love working with Blueground because we know how to market their properties at competitive market prices while providing a five-star property management service. As a landlord, you can enjoy guaranteed monthly rental income and no void periods while our local team takes care of tenant relations, property repairs and rent collection on.
