If you’re a foreign landlord in London, you need to pay UK taxes if you live abroad for more than 6 months of the year. Taxes must be paid on any income received from renting out property in the UK.
If you’re a landlord living abroad and renting out in London, you might find all the information online a bit confusing. It can be hard to figure out whether you’re subject to UK tax laws, and what happens if you’re already paying taxes on this income in another country.
In this guide, we’ll break down the key aspects of UK tax law for non-resident landlords.
If you are looking for a property management company in London to help you stay compliant with UK tax regulations, get in touch with J Property Management today.
Understanding UK Tax For Foreign Landlords
Regardless of where you live, UK tax laws apply to any income generated within the UK, including property.
If you own property in London and rent it out for example, you’ll need to pay tax on that rental income to HM Revenue & Customs (HMRC). If you’re a UK citizen living abroad, you’re considered a “non-resident landlord” if you’re outside the UK for six months or more in a given year.
To make sure foreign landlords pay their fair share of tax, the UK government introduced the Non-Resident Landlord Scheme (NRLS).
Under NRLS, anyone who manages property on behalf of a non-resident landlord – including letting agents or tenants – has a legal duty to hold the tax amount at the basic rate (20%) from the rental payments and send it directly to HMRC every quarter.
If you are a landlord and you prefer to receive your rent without deductions and handle tax yourself each quarter, you can apply for an exemption. To apply for this, you need to submit form NRL1 to HMRC.
However, HMRC will only approve your application if your tax returns and payments are up-to-date. Once approved, HMRC will tell your agent or tenant that no tax deductions are necessary, leaving you responsible for filing a Self Assessment tax return for yourself.
How The NRLS Works For Letting Agents and Tenants
If you’re a non-resident landlord, here’s how NRLS may apply based on your rental management setup:
- Letting Agents: If you have a letting agent, they must deduct tax from your rental income. Agents will calculate this every quarter on all rent received, after allowable expenses and submit it to HMRC. This ensures that landlords remain tax compliant.
- Tenants: If you don’t have a letting agent, the tenant must deduct and pay the tax if they pay more than £100 per week in rent. However, if HMRC authorises you to receive the rent without tax deductions, you can take over this process on your own.
HMRC asks agents and tenants to complete their tax reporting quarterly, with deadlines on:
- 30 June
- 30 September
- 31 December
- 31 March
If you aren’t working with a property management company, make sure you have these dates noted down to avoid any missed taxes.
How Much Tax Do Foreign Landlords Pay On Rental Income?
As a non-resident landlord, you’ll need to pay taxes on your profits from UK rental income. When it comes to allowances, you get:
- Property Allowance: This allows you to earn up to £1,000 in rental income tax-free.
- Personal Allowance: If you don’t have any other UK income, you may be able to allocate your tax-free allowance of £12,570 to your rental property, meaning that you’ll only pay tax on income over this amount (for the 2024-25 tax year).
Once these allowances are applied, here are the tax bands you’ll fall into:
- Basic Rate (20%): Income between £12,571 and £37,700
- Higher Rate (40%): Income between £37,701 and £125,140
- Additional Rate (45%): Income above £125,140
So, if you earn £15,000 in rental income after expenses, you’ll be taxed on £2,430 above your £12,570 Personal Allowance.
What Counts As Deductible Expenses As A UK Landlord?
As a landlord, you are allowed to note down expenses associated with having a property.
Once the value of the expenses are removed from the overall income, the remainder will be taxed according to the rates above.
You can expense:
- Agent fees: Fees paid to letting agents or property managers.
- Maintenance and repairs: General upkeep, repairs and replacements (note: this does not include aesthetic renovations)
- Insurance: Property or landlord insurance.
- Utilities and Council Tax: If you pay these for tenants.
- Other expenses: Cleaning, gardening, legal, and accountancy fees.
By tracking these expenses, you can deduct them from your income, meaning you only pay tax on your net profit.
Filing Your Tax Return As A Non-Resident Landlord
As a non-resident landlord, you’ll need to complete a Self Assessment tax return each year to declare your rental income.
Since HMRC’s online system isn’t available to non-resident landlords, you’ll need to file your return by post or use tax software that supports filings outside of the UK. Alternatively, you might want to hire a UK accountant to do this for you.
When completing your tax return, include form SA109 for your residence status and form SA105 for property income.
The deadline for postal filing is 31 October, and the online filing deadline is 31 January. Late submissions may be subject to penalties, so planning is important to stay compliant.
Avoiding Double Taxation
If you’re taxed on this rental income in another country, you might worry about paying tax twice, also known as Double Taxation.
Luckily, the UK has double-taxation agreements with many countries, so you’re not taxed twice. If you want to know if your country of residence has this type of agreement with the UK, it’s best to speak to a specialist advisor.
Capital Gains Tax (CGT) When Selling A UK Property
If you are a foreign landlord and you decide to sell your UK property, you may be liable for Capital Gains Tax (CGT).
Non-residents must declare property sales (and pay the taxes) within 60 days, even if no gain was made.
The CGT rate is 18% for basic-rate taxpayers and 24% for higher-rate taxpayers. Keeping accurate records of costs, expenses and other fees will help you work out how much tax you have to pay.
Joint Ownership: What Happens When A Property Is Co-Owned?
If you own a property with a spouse or civil partner, the NRLS treats each of you as separate landlords.
Each partner will need to apply individually if both want to receive rental income without tax deductions. However, if one spouse is resident in the UK and another isn’t, the NRLS will apply only to the non-resident spouse’s share. The UK-resident spouse does not need HMRC approval to receive untaxed income.
Essentially, each person is treated individually according to their circumstances, so must make sure they are compliant with their own laws.
The Importance Of Staying Tax Compliant
Like with all things, HMRC rules regularly change, so it’s important to stay up to date and compliant.
By making sure that you register, file your tax returns on time and pay the right amount of tax, you can avoid any penalties and stress. If you’re not sure about your tax obligations, get in touch with us to find out more today.
Tax Laws For Non-Resident Landlords
Renting out property in the UK while living abroad can be a great cash generator but it comes with its own set of tax laws. Understanding the Non-Resident Landlord Scheme can help you stay up to date and manage this effectively.
Remember to register with HMRC, keep track of your income and expenses, and, if needed, get professional advice around taxes. By following this guide, you can make sure you stay compliant on your UK rental income, even if you live abroad. .
