Tax Planning on Property for UK Residents and Non-UK Residents.

The end of March or more specifically the 5th April remains a key tax planning date for UK residents. However, it is also an important time for non-residents who may have rental income from a UK property, because it is the cut-off date to calculate property income profits or losses, explains Peter Mason, from West Midlands Chartered Accountants, Armstrong Chase.

It is commonplace for ex-pats to retain property in the UK, which is let for periods of overseas absence. This ensures that the ex-pat has a place to live in the UK should he/she return and also gives protection against a rise in house prices during the period of absence.

Rental income arising from UK property is chargeable to UK tax for individuals at lower (10%), basic (22%) or higher (40%) rates.

Where a landlord is non-resident basic rate tax must be deducted at source by the landlord’s agent or by the tenants themselves and the tax passed over to the Inland Revenue, on a quarterly basis. The agent must give the non-resident landlord an annual statement showing details of the tax deducted.

Under the Non Resident Landlords’ Scheme it is possible to apply to have all rents received gross, provided that the landlord:

1) Has his/her tax affairs up to date.
2) Has never had any UK tax obligation.
3) Does not expect to be liable to UK tax.
4) Undertakes to comply with UK tax obligations.

Once this approval is obtained then the landlord can continue to receive rents gross but must complete the necessary annual Self-Assessment Tax Returns.

The annual tax return is often completed by the landlords UK tax agent or accountant who works closely with the letting agent. A rental income statement is prepared showing the rentals received with deductions for associated expenses, which are considered to be wholly and exclusively incurred. These expenses include agent’s commission, rates, insurance, advertising, repairs, cleaning, loan interests etc. Expenditure of a capital nature such as furniture, fridge’s, washing machine etc, is deducted by means of capital allowances or in the case of furnished lettings, by a concessionary ware (wear?) and tear allowance.

A further “personal allowance” deduction is usually available to the non-resident landlord (or a double allowance in the case of a joint landlord such as man and wife).

Where tax has already been deducted at source but no rental statement formally prepared, then it is possible to claim back 6 years and this may result in a significant tax refund.