Tax On Rented Property

In this posting we want to draw your attention to problems that can arise when paying rent to a non-resident Landlord.

Please see below a link to the relevant page of the Government website.

The issue arises where a Landlord who lives abroad for more than six months of the year lets property in the UK.  In such a case the Landlord must pay tax on rent received.

Tax issues for the tenant

However, many people don’t know that the law also places a responsibility on the Tenant.

If you are a Tenant whose  Landlord lives abroad and you pay over £100 per week in rent then you need to register with HMRC and deduct tax from your rent.

There was a case recently where the Landlord hadn’t paid the tax and the Tenant was ordered to pay the whole amount outstanding directly to the Government.  This was completely unexpected. The  Tenant had paid the rent to the Landlord and didn’t think for a moment that the Landlord’s tax affairs had  anything to do with him.

As you will see when you click the link the Tenant is also obliged to report to HMRC each year, provide a Certificate to the Landlord and keep records.

Tax issues for the landlord

Whilst on the subject of property rental, we often act for Clients who buy property to let. This is a short  summary of the tax issues that arise.

Any income earned from renting property will (obviously) have to be declared and tax paid at the Landlord’s tax rate.  If the owners of the property are a couple then it often makes sense to arrange the shares so that the partner who has the lower tax rate receives the larger share of the rent.

The good news is that you can deduct interest paid on a “buy-to-let” mortgage from the income earned and pay tax only on the difference between the two (the profit) but it is important to understand that this is changing.  From 2017 the tax relief will be restricted to 20%. That will reduce the profit for many people.

Also, you will have to consider Capital Gains Tax when you come to sell the property.  Again, where there is more than one owner careful consideration will have to be given to the share in the property that each partner should have so that the one who has the lower rate of tax has the larger share.

The information and comment in this post (and on this website) are for information purposes only. and not intended to constitute legal  advice relevant to particular circumstances.

If you wish to discuss any of the issues raised in this please contact any of our offices