UK Tax Filing requirements for overseas Landlords and changes to capital gains tax on UK property from 6 April 2015

A UK income tax return is required to be completed by overseas landlords. This is necessary to ensure that the correct amount of UK taxation is paid. It is possible to claim a variety of expenses against the rental income, so long as the expense is incurred wholly and exclusively for the rental activity purposes.

Requirements to complete a tax return:

A UK income tax return is required to be completed by overseas landlords.  This is necessary to ensure that the correct amount of UK taxation is paid.  It is possible to claim a variety of expenses against the rental income, so long as the expense is incurred wholly and exclusively for the rental activity purposes.

A UK tax return should be completed even if the letting does not generate a profit or even if the profit is less than the UK personal allowance (therefore meaning that no UK tax is due).  HMRC have a right to know the rental profits/loss of the properties and this must be filed each year.

What if a tax return has not been completed for previous years?

We strongly recommend that a professional tax adviser acts on your behalf in relation to declaring underpaid taxes. It will be necessary to approach HMRC to make a voluntary declaration that tax returns have not been filed.  It will then be necessary to complete tax returns for the required years (going back up to a maximum of 20 years).  

Entitlement to a personal allowance and double taxation relief:

It will be necessary to determine whether a UK personal allowance will be available against the UK rental income.  In many cases if a personal allowance is available, it would mean that there is no UK tax to pay.  However, care is needed in this area as the rules on who is entitled to a UK personal allowance have changed over the past few years.

Tax deducted at source on rental property income:

In many cases tax will be deducted at source on the rental income, but if you have a gross status position, then you will be receiving the full rental income from your letting agent.  It is the Landlords responsibility to ensure that any taxes are paid if they receive the gross rental income.

Recent changes in capital gains tax arising on disposal of UK property by overseas landlords:

The rules on the capital gains tax treatment of disposals of UK property changed for disposals made after 5 April 2015.  Any disposals made after this date are subject to capital gains tax.

There are two ways of calculating the gain on disposal, and in each case it will be necessary to determine which is the most tax effective method. 

It is important that Landlords are proactive in obtaining valuations of their properties as at 5 April 2015 – we would recommend liaising with your letting agent to see if they can provide the valuation for you.  It is certainly worth getting this valuation if you have held the property for more than 4 years, as it is likely to produce a lower taxable gain than the alternative “straight line approach” basis.

We would be delighted to provide further information and guidance in relation to capital gains tax and ways to minimise the amount of taxation incurred.

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