If you have just bought your first property in the UK there are certain actions and dates that you should not forget.
Remember them and your UK tax reporting should be (relatively) painless but forget to or complete them late and you could be in for a nasty and unnecessary surprise.
Register for the Non Resident Landlord Scheme (NRLS)
If you normally live outside of the UK, note you do not necessarily need to be not resident, then the NRLS will apply to you. The NRLS dictates that your letting agent (or if you do not have one your tenant) must deduct income tax at the basic rate and pay this over to HM Revenue & Customs (HMRC) on a quarterly basis.
The agent will almost certainly deduct too much tax and the excess will only be paid to you when a tax return is submitted.
You should, therefore, make a submission to HMRC to have the rent paid without withholding tax (note that this is not an exemption from tax). The approval is likely to be issued within a few weeks and can then be used for any other property purchases or if you move letting agents. You do not need to re-apply if you move agents or buy another property.
If your property is owned by more than one person you must submit an application for each of you. The NRLS applies to individuals, companies and trusts.
Register for Self Assessment
If HMRC do not issue you with a ten digit Unique Taxpayer Reference (UTR) automatically, you should ensure that you notify them of the new source of income by 5 October following the end of the tax year that the source of income starts. The UK tax year ends on 5 April so if you started renting a property in August 2016 you must notify HMRC by 5 October 2017.
This is important because if you neglect to notify HMRC of the source of income and any tax liability is paid late, penalties can be charged by HMRC.
Submit your tax return
As most people know you must submit a tax return by 31 January following the end of the tax year. So, for the year ended 5 April 2016 we have until 31 January 2017 to make the submission. However, this is only for online submissions. Paper submissions must be made by 31 October. To complicate the matter if you live abroad you are not able to use the HMRC website to submit tax returns as it will assume you are UK resident and your assessment will be incorrect.
Property owners living abroad must submit paper tax returns by post by 31 October, by purchasing software from a third party or by using an authorised agent such as MJH Tax Consultants who can submit tax returns online using bespoke software. Where a property is owned by more than one person each of them should submit tax returns.
Tax returns that are submitted later than the above will accrue punitive penalties.
Pay your income tax
If you have a tax liability you must pay this by 31 January following the end of the tax year. If your liability is more than £1,000 you usually have to make payments on account for the following year’s liability. These are 50% of the previous year’s figure and are payable on 31 January during the tax year in question and 31 July following the end of the tax year.
Any excess tax paid will be refunded when you submit your tax return for that year while any additional tax will be due on 31 January following the end of the year.
It sounds confusing but it all becomes clear over time!
Selling a property
We will cover this topic in more depth this in a future article but do not forget that if you sell a UK residential property it must be reported within 30 days of conveyance and again on your personal tax return when that is submitted. If you miss the 30 day deadline the usual self assessment late reporting penalties will apply.