Many people have a dream of retiring to sunnier climes – not least in the midst of a cold British winter – and landlords are no different. In today’s blog, we talk about the tax implications of moving abroad and what to do to ensure you don’t fall foul of the law. This is our simple guide for Non-Residents.
There are a lot of arrangements and practical steps to take before making your dream of living abroad a reality, one of the most important of which is sorting out your tax position.
This is the same for anyone who chooses to move abroad, not just those who are retiring.
What do I have to do?
Follow these seven steps and you are well on your way:
Step 1 – Update your address with HMRC
This is important to ensure you all correspondence sent by HM Revenue and Customs (HMRC) goes to the right office address, and to therefore ensure you can take any action as appropriate.
For example, you have only a limited period of time in which to challenge HMRC amendments to your tax returns, otherwise they assume agreement. Added to this, if you have sold your old main residence the last thing you want is for your tax affairs and possibly even personal details, to go through someone else’s door.
Step 2 – Register for the Non-Resident Landlord Scheme
A non-resident landlord (different to a non-resident for general tax purposes) qualifies as such if you spend more than six months outside of the UK in a tax year.
This means that the letting agent who manages the property deducts 20% tax after any expenses they have paid. In rare cases where a managing agent is not used, this is deducted straight from the rent paid by the tenant.
Because this does not take in to account either your personal allowance (where eligible) or expenditure that you have incurred separately from the letting agent, overpaying tax on rental income is quite a common problem.
To avoid this situation, it is advisable to complete a form NRL1.
Assuming your tax affairs are up to date and HMRC accept the application, form NRL1 will mean that you receive your rental income gross of any income tax and pay any tax bill you owe through self-assessment.
Form NRL1 can be completed in advance of moving abroad.
Step 3 – Check what allowances you can claim, and what you can’t!
There are certain general tax allowances you can claim and some you can’t as non-residents, landlord or not.
ISA allowances are not claimable as non-residents.
Generally personal allowances are. You are eligible to claim a personal allowance if you are a UK citizen, or in fact if you are a citizen of anywhere in the European Economic Area under the current rules.
You may still be able to qualify for a UK personal allowance if you are not an EEA resident depending on the UK’s double tax agreement with that country.
Step 4 – Get your tax return in early
Given the potential to be in a refund situation where an NRL1 form is not completed and processed prior to you becoming a non-resident landlord, it is beneficial to get your tax return in early to claim any refund due as quickly as possible.
A refund is also even more likely if you have given up employment prior to leaving the UK part way through the year, as you may have been paying tax on the assumption of a full year’s income, potentially causing an overpayment.
Step 5 – Claim any refund by bank transfer
Even when you do change your address with HMRC in good time, there are commonly more issues in receiving HMRC correspondence when abroad.
Post generally takes longer to reach you, and some has been known to go missing.
Of course, this can vary with the quality of the postal service in the country you are moving to.
Therefore, it is advisable to claim any refunds by bank transfer rather than by cheque, to ensure it reaches you in a timely manner.
Step 6 – Start completing the non-residents page on the Tax Return
There is a new section on your self-assessment tax return page for you to complete.
There are a few details to add but most importantly, you should keep a record of the number of days spent in the UK in the tax years (and how many workdays if you come back to the UK to work).
A day, for this purpose, is defined by you being here at midnight for that day.
Step 7 – Finally… make sure you are meeting your obligations in both countries!
The single most common way that people make a mess of their tax affairs when moving to a different country, is that they assume they only need to inform the tax authorities of either the country they have moved from, or the country they have moved to.
As non-residents for tax purposes, you are still taxed on all your UK income.
In terms of the country you move to, you would need to seek advice as to its own tax regime, but commonly there is some obligation to declare the income in that country.
Again, double tax agreements with individual countries try to prevent a situation where you pay tax twice.
Getting this wrong can lead to problems with one, if not two separate tax authorities giving you a double headache, as there is ever increasing co-operation between tax authorities of different countries on sharing information.
This is why it is important for non-residents to seek professional advice in both countries.
For any of your property tax needs, please do not hesitate to contact RITA4Rent today on Freephone 0800 1 22 33 57 or via email by clicking here.
- We recommend all professional landlords protect themselves and their business by gaining access to advice, information and education from a landlord association. Become a member of the Residential Landlords Association (RLA) today and join over 35,000 other landlords, just like you. Click here to become a member of the RLA today.
- Given the sheer level of tax changes in recent years, it might also be a good time to review your mortgage position. Please note we are not authorised to provide advice or arrange mortgages but we can introduce you to a firm who can. If you wish to discuss your policies or receive advice then please contact us and we will pass your details onto RLA Mortgages who are authorised and specialise within this area.
- propertychecklists.co.uk has been set up by Which? property author Kate Faulkner and offers checklists on everything from how to choose a buy to let through to securing tenants, letting them go and day-to-day management. If you have a question and want an independent answer, they will also help with that too – all free of charge!
- Finally, it can also be a great help communicating with like-minded landlords, learning about their experiences, and having a chat. You can do just that by heading over to Property Tribes today, the busiest forum for private and residential landlords in the UK.