All owners of UK property who receive rental are liable to tax on the profit that they make.
Irrespective of whether the property is let through an agent or by a direct agreement with a tenant, both have a legal obligation to withhold tax at 20% from the gross rents.
Applying to receive the rental with no tax deduction can be made and can improve your cash flow position.
Tax return completion will be required in most cases to satisfy HMRC that no tax liability arises or to reclaim tax or even to substantiate tax losses to carried forward.
When calculating the profit/loss position following 6 April 2016 the 10% wear and tear allowance was abolished in respect of properties let furnished. It has been replaced by a new relief that allows landlords to deduct the actual costs of replacing furnishings.
In respect of unfurnished let properties, renewals relief applies to landlords who continue to claim for deductions for the costs of replacing furnishings.
Since 6th April 2016, UK banks no longer deduct tax at source on interest credited to accounts. This is because of the introduction of the "Savings Allowance". This means that a basic rate tax payer can receive up to £1000 of interest each year tax free and a higher rate taxpayer £500 tax free. This is effective for 2018/19
Since 6th April 2016 the 10% tax credit has been abolished. The first £5000 of dividends can be received free of tax. For 2018/19 the sum has been reduced to £2000.
Statutory Residence Test
A statutory definition of tax residence was introduced to the UK in April 2013 and what follows is a very brief overview of the position.
The first stage in establishing tax residence in complete tax years is whether you are conclusively non resident (automatic overseas test) conclusively resident (automatic residence test) or when neither apply, to consider the "tie breaker" clause (sufficient ties test).
One of the automatic overseas tests will apply when broadly an individual leaves the UK to carry out full time work abroad for at least a complete tax year. Provided they are present in the UK for no more than 90 days in the relevant tax year and no more than 30 days are spent working in the UK in that tax year the individual should be treated as non resident.
Automatic Residence Test
Generally speaking, spending in excess of 6 months per tax year in the UK with property available for your use will render you tax resident.
Sufficient Ties Test
Where the first two tests do not apply then the Sufficient Ties Test determines whether an individual is resident or not. This looks at a combination of time spent in the UK against a number of predefined connecting factors or ties they have with the UK.
The ties depend on whether in all of the previous 3 years they are regarded as an "arriver" or "leaver". The factors are for an arriver are;
Having a UK resident family.
Having accessible accommodation in the UK.
Has substantive UK employment.
Has spent 90 days or more in the UK in either of the previous 2 years.
For a "leaver" an additional tie is,
Spent more time in the UK than any other country.
Once the ties have been established then the number of permissible UK days can be calculated using a formula to determine whether you are resident or not.
The SRT and Leaving the UK
In the year of departure, the tax year is split unless you leave on or around 6 April.
To become non resident you must qualify for split year treatment and satisfy certain criteria of which there are three.
Against this, you need to be mindful of the time that is spent in the UK.
The process is complicated and needs to be reviewed carefully against your circumstances to ensure qualification.
Failure can mean living and working overseas but remaining fully taxable for the year of departure.
Non residence in subsequent years can be achieved again by satisfying the criteria as set out by HMRC.
Returning to the UK
Again, in the year of return the tax year is split unless you return close to the 6 April.
Split year treatment has to met of which there are five sets of criteria. Where you cannot meet the criteria then tax residence can start from 6 April in the year of arrival which could result in unexpected tax liabilities.
The rules are designed to trip up the unwary.
It is true that the rules are complicated so if you need to know whether you are resident or not especially for tax return completion or planning to leave or return to the UK to ask us for help and completing the "Enquiry form".
Not to be confused by residence, domicile is a legal concept and can produce tax planning opportunities for those who are tax resident as well as non resident.
For those who are resident with a proven domicile outside the UK, special tax treatment in respect non UK arising income and gains can be secured, this is known as the remittance basis of assessment or charge. The effect being that overseas income, gains and inheritances can be sheltered from UK tax provided certain criteria are met.
Similarly those UK nationals who move abroad never with the intention of returning to the UK and emigrating and establishing a new domicile of choice in a new home country can also secure beneficial tax treatment. Certain criteria have to be met.
If this is something you would like to explore to complete the Enquiry form on this website.