Expat landlords should file a UK tax return

It’s coming around to tax return time for British expats again – and many forget that if they are renting out a property back home they still have to file a return wherever they may be living.

As reported last month, thousands of expats who leave Britain to work abroad for years at a time let their homes and forget to tell HM Revenue & Customs about rental profits under the Non-Resident Landlord Scheme (NRLS).

The scheme is a two-way tax catch –

  • If you are a foreign investor with letting property in Britain, you must declare the profits
  • If you are a British expat letting property while you are overseas, you must also declare the profits

How the Non-Resident Landlord Scheme works

Non-resident landlords have two options – either relying on their letting agent or tenant to deduct tax and pay the money directly to HMRC or filing a tax return.

If no tax return is filed, if the rent – not the profit – is more than £100 a week, a letting agent or tenant must deduct tax at 20% from the rent.

Specified expenses are allowed, like the cost of the mortgage, the letting agent, insurance and repairs, before deducting tax.

The problem is the letting agent or tenant is unlikely to be aware of the landlord’s financial affairs, so in practise, the rent is deducted from the gross rent and expenses are ignored, leaving the landlord out of pocket.

Filing a tax return as a non-resident landlord

Completing a tax return is often the best option for non-resident landlords. This way, tax is only paid on rental profits, as all the usual landlord expenses can be deducted from the gross rent.

Also, by filing a tax return to prove a rental loss, a non-resident landlord can avoid paying the withholding tax deducted by the letting agent or tenant.

Another advantage is if the landlord has a portfolio of rental properties, those making losses can be set off against those making profits to reduce overall income tax.

Becoming a non-resident landlord

You can’t just decide to join the Non-resident Landlord Scheme, you have to apply to HMRC for membership.

Download Form NRL1 from the HMRC website

Other downloads are available from HMRC for non-resident trusts or companies.

NRLS applies to landlords letting out property – that’s residential or commercial – while their usual home is overseas. The broad definition captures servicemen, diplomats as well as anyone else living abroad.