Taxes for UK expat landlords might not be so hard after all

Non-resident UK landlord tax is usually due by January 31 for UK rental income

Non resident UK landlord tax is a common area for misunderstanding, according to expat buy to let mortgage brokers, Offshoreonline.org. “We are regularly asked for general information by non residents on UK landlord taxes, as it is clear that many expats are now confused as to what their taxes might be,“ said Guy Stephenson, a spokesman for Offshoreonline.org. This is particularly prevalent in the run up to the January 31 tax deadline.

Significant changes are afoot to the tax regime in the UK for buy to let landlords, but not all of these will impact upon expatriate landlords, which is one reason why there might be so much confusion. Comments in the press in the UK are unlikely to focus on the specific circumstances of expats, for example.

One of the most frequently quoted changes is the trend towards company formation to hold buy to let properties onshore, as new UK finance, i.e. mortgage, cost restrictions are introduced from 2017 to 2020. The most visible aspect of this is probably the gradual removal of higher rate income tax relief on mortgage interest costs from 45% or 40% down to 20% – but this should not be a concern for expats, the vast majority of whom will only ever be liable to tax at the basic rate (20% currently) on rental income.

In fact, according to Offshoreonline, any plan for expatriate landlords to move properties into a company can have significant disadvantages. First of all, companies do not benefit from personal capital gains tax relief on the sale of buy to lets, so the current individual capital gains allowance of £11,700 (from April 2018) would be lost.

More significant, though, is likely to be the attitude of lenders. Very few will lend to companies controlled offshore for compliance reasons – a typical bank response will be that they have a fundamental regulatory requirement to have full disclosure on the directors of the company and because expat controlled companies might use nominee directors, this control is lost. The banks take the view, therefore, that the risk is too high and so they will not lend to such entities. Finally, the cost of maintaining a company, preparing accounts and ensuring all the returns are submitted on time can be significant and fines are heavy for those who miss the deadline, something which is more likely, if you are trying to manage a UK company from overseas.

From an income perspective, the position of the expatriate buy to let landlord is still favourable – you can still offset the costs of running the buy to let, i.e. agent and management charges, insurance, maintenance and repairs, etc. and you can still offset the interest element of your mortgage against your potential rental income tax liability at the basic rate of tax, currently 20%. In addition, all expats will still benefit from their personal allowance, i.e. the amount you can earn before tax is due from rental in the UK. This is calculated by taking total rental income and the deducting allowable expenses. For the 2018 -2019 tax year, an expat buy to let landlord can earn £11,850 after expenses before tax is due. Above this figure, you will normally pay tax at 20% or at the basic rate in force at the time.

“Despite these changes, property remains as an asset which most expatriates understand and feel very comfortable with. Taxes for UK expats need to be taken into account, but these should not make or break an expat buy to let investment decision. Provided the purchase is considered carefully in terms of area ant type of house, there is no reason why property should to continue to be a sound asset to hold for expatriates, especially as a pension vehicle or to keep a foot on the property ladder, especially after any mortgage is paid off, ” added Stephenson.