There are several taxes which a Non-Resident Landlord (NRL) should be aware of, including income tax, capital gains tax, corporation tax, the Annual Tax on Enveloped Dwellings (ATED) and a 15% Stamp Duty Land Tax (SDLT) charge. There are also proposed changes to the tax rules on disposals and the rules for corporate NRLs which are due to be brought in during 2019 and 2020.

The NRL Scheme applies to UK rental income paid to non-resident landlords (both individuals and corporates). The compliance requirements can affect landlords, tenants and letting agents. A non-resident landlord is a landlord who has UK rental income and whose ‘usual place of abode’ is outside the UK. This covers cases where someone lives abroad for 6 months or more in a year or, for example, a non-resident company. This can even apply where an individual remains a ‘UK resident’ for tax purposes. The purpose of the scheme is to ensure that non-residents are taxed on their rental income from UK properties. The NRL Scheme requires tax to be deducted at 20% by either the tenant or letting agent as appropriate – unless the landlord obtains permission from HMRC to receive the rental income gross – see article Non-Resident Landlord Scheme

Non-resident landlords are required to submit an annual self-assessment tax return and to pay their tax liability by 31 January following the end of the tax year. NRLs (both individuals and companies) are currently charged under the income tax regime (0% – 45%). NRLs can offset the tax deducted under the scheme against their own tax liability when they complete their UK Self-Assessment Tax Return.

Since April 2015, non-resident landlords may also be subject to capital gains tax if the gain on selling a UK residential property is above their capital gains tax annual exemption. All other relevant disposals in the year must be considered when reviewing if a charge to capital gains tax arises – see article CGT for non-UK residents on UK property

Changes to the NRL rules

From April 2019, all non-residents will be subject to UK tax on the disposal of any immoveable property. This includes commercial and residential property disposals but also any gains on the indirect disposal of property interests. Indirect disposals capture the disposal of shares in a property rich company, where at least 75% of the value of the gross assets of the company is derived from UK property and the person disposing of the shares owns at least 25% of the company. Ownership can be direct or indirect. There is an exemption if the properties are used in a trade e.g. retail premises owned directly by the retail trading company. Where the person making the disposal is a company then the gain will subject to corporation tax, rather than capital gains tax, as was previously the case. This may mean that some companies need to file both an income tax return disclosing their rental income and a corporation tax return disclosing their gains. Rebasing to April 2019 will be available to calculate gains where these are first brought into charge, similar to the rebasing provisions applying from April 2015 for gains chargeable from that date.

From April 2020 all corporate NRLs will fall within the corporation tax regime, rather than under income tax and capital gains tax. This aims to align the tax treatment of UK and non-UK property owning companies. These NRLs will therefore be subject to the corporate interest expense restriction and the new carried forward loss rules. There will be the potential to transfer any income tax losses on the NRL business into the corporation tax regime – see blog Non-residents under CT rather than IT rules

ATED and SDLT

NRLs who invest in residential property and are ‘non-natural persons’ e.g. companies, should also be aware of ATED compliance obligations and a potential 15% rate of SDLT on acquiring a residential property. ATED can give rise to a significant annual tax charge and the 15% SDLT can result in an additional cost at the point of investment if no relief is available. Capital gains can also be chargeable under the ATED-CGT regime, but this CGT regime is to be abolished from April 2019 following the new rules in respect of non-residents CGT on all UK property.