Q: I used to live in the UK but have recently moved abroad. I have a residential property in the UK which I let out. A friend has mentioned that I should be receiving the income with tax deducted, is that correct?
A: As a non-resident, you remain liable to UK income tax on rental profits arising from a property in the UK. Registration under the Non-Resident Landlords Scheme should be undertaken. The scheme then requires the letting agent to deduct basic rate tax, which is currently 20%, on the amount of rent received less any allowable expenses paid by the letting agent or tenant. If there is no letting agent and the tenant pays you more than £100 per week, the tenant is then obliged to deduct the tax. Any expenses deductible from the rent have to be revenue in nature and wholly and exclusively incurred for the rental business, examples include advertising costs of attracting new tenants, ground rent, insurance on buildings and contents and provision of services (for example gas, electricity, hot water).
The letting agent or tenant is required to account for the income tax due on a quarterly basis. They should also complete an annual information form and provide the non-resident landlord with a tax deduction certificate.
Any expenses incurred by the landlord personally are not taken into account by the letting agent or tenant and so it is possible that where the landlord is a basic rate taxpayer the result is an overpayment of tax which then still has to be reclaimed. Indeed if you, as the landlord, are a higher rate taxpayer then additional tax will be due.
It is, however, possible to apply to HMRC to receive the rental income gross. If the application is successful, HMRC advises the letting agent or tenant not to deduct tax from any rental payments and tax is paid via the Self Assessment system. An application can be made provided the landlords UK Tax affairs are up to date, or he has never had any UK tax obligations or he does not expect to be liable to UK tax.
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