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Even non-UK residents have to pay tax on UK property

Published: 30/03/2021

'In this world, nothing is certain except death and taxes' – it’s a time-honoured saying because it contains some truth.  The returns from investing in UK residential property are always subject to UK tax, both on rental income and on capital gains realised from selling a property, and this applies to non-resident landlords just as to UK residents: there are NO exceptions.
But tax is due on the net profit, not on the gross rental income or capital gain, and including all permitted expenses and deductions makes a substantial difference to the tax bill.  It is possible to deduct nearly all ongoing expenses of a property from the rental income to calculate the amount chargeable to tax – management fees, insurance premiums, repair and maintenance costs etc.
It’s important to understand that UK tax is based on “self-assessment”.  HMRC, the UK tax authority, won’t give you any advice or work out the tax for you: you must provide the relevant information and tax calculation and HMRC then has the right to challenge it if they wish.  So some expert input is vital.
Beware of the punitive penalty regime for failing to comply.  For example, if HMRC receives your tax return as little as one day after the deadline, the penalty is £100; more than three months late and a further £10 per day will be added.  Interest is always charged on tax paid late.  Some filing timescales are short: a non-resident landlord who sells a property must file a Capital Gains Tax return, and pay any tax due, within 30 days of completing the sale.
Yet the need for tax compliance doesn’t detract from the continuing advantages of UK residential property as an investment for non-residents.  Unlike most other investment activity, tax relief is given on interest paid on loans or mortgages used to finance the property purchase; tax paid on property income in the UK is in most cases allowed as a credit against tax charged in the investor’s home country; tax-free bands are available under some international tax treaties.  Don’t be put off, take good professional advice and be sure to keep your UK tax affairs up to date.

Chris Mercer, MTM
Tax consultant
Prime Portfolio