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In the UK, one can profit anywhere near 10% by renting their property. This is why many British citizens prefer renting out their own houses to move to smaller and more affordable countries to enjoy life there through the rental income earned in the UK. Privat rent in the UK has been hitting a record high for quite a few years now, and the average rental property is anywhere between £1126 (outside London) to £1832 (within London).
However, when you rent out your property in the UK while living overseas, you must adhere to the UK income tax rules, which include paying a capital gains tax to the UK government if you profit from selling any property in the UK.
The Non-Resident Landlord Scheme (NRLS)
Under the Non-Resident Landlord Scheme, the landlords, letting agents and tenants are required to obey strict regulations and rules in order to avoid getting fined concerning UK tax purposes. The tenants or letting agents are obliged every month to deduct tax due before the landlord who is living outside of the UK is paid the rent amount. The deducted tax is paid in full every three months to the Her Majesty’s Revenue and Customs (HMRC). A non-resident is defined as a person living outside of the UK for six or more months in a particular year and renting out their UK property regularly.
How much tax do you need to pay on rental income?
You need not report the rental income if you earn less than £2500 yearly. Suppose the total property income is anywhere between £2500 and £9999 after allowable expenses have been deducted OR £10,000 pounds or higher before allowable expenses are deducted. In that case, you are needed to report the same through a Self-Assessment Tax Return known as SA100.
Taxable income from all rental sources should be disclosed in detail while filling out the SA100, as this determines exactly how much income tax you need to pay on the rental income that you earn and every other income as well. If you are someone who is not running a property rental business, you need not pay for the national insurance on the rental income, but if you are a professional landlord running a business, letting out more than one property every year, national insurance on the rental income needs to be paid.
- The basic income tax slab of 20% is payable when total taxable income is between £12,571 and £50,270
- The higher income tax slab of 40% is payable when total taxable income is between £50,271 and £150,000
- The additional income tax slab of 45% is payable when total income is more than £150,000
How much tax can you save on UK rental income?
- The first £1,000 of the rental income earned is always tax-free in the UK as the tax-free property allowance no matter if you live in the UK or not
- If you own a rental property in the UK with someone else, each of you can claim the thousand pound tax0free property allowance and subtract it from your gross rental income to reduce the tax paid
- If you do not claim the above-said deal, you can claim the allowance expenses that are related to the UK rental property
- You also get a personal tax free allowance of £12,570 every year, and no income needs to be paid if you are under this amount throughout the year
- If you are not a resident of the UK, you can claim the above-said allowance at the end of the tax year according to any double taxation treaty that your resident company may have with the UK
- If you are a high-income earner, the personal allowance will decrease by a pound for every two pounds above £100,000 net income
- You do not get any personal allowance if your yearly income exceeds £125,140
- If your property is wholly or partially furnished, you can claim a replacement domestic items relief that enables you to replace beds, curtains, sofas, carpets, crockery and more (with similar quality of goods)
- You can claim the allowance expenses based on the costs that you pay to maintain and rent the property in the UK. This helps you reduce your taxes as well. This include fees paid to let agents, accountant, lawyer, essential maintenance, insurance, cleaning, repairs, gardening and more
Conclusion
Reporting the UK rental income is not a tedious task as all you need to do is file an SA100 if your income is enough to be taxed after renting out a property or more. If you are a resident of the UK, you can do this via an online portal; if you are not, you need to download the tax return files and post them to the HMRC. It is vital for people renting out properties in the UK, irrespective of their residence and citizenship, to disclose everything they earn via UK resources and ensure that all taxes are paid duly and in time.
If you’d like to learn more about rental income as an expat, request an introduction to a tax specialist by clicking the link below.
