Things to consider as an expat landlord
There are plenty of great buy-to-let opportunities in the UK that many overseas investors are taking advantage of. Capital appreciation in the north of the country is especially strong and the current housing shortage is creating a strong demand for rentals. For many Brits abroad, having a physical property in the UK is also nice from a security perspective. Should they find themselves in a situation that requires them to return home, they have somewhere to go.
However, owning a property comes with responsibility towards tenants, maintaining the building and paying tax on any rental profits.
Any rental income from UK property an expat receives is considered UK income and therefore taxable in the UK. The first £1,000 of rental income is tax free, but expats must file a self-assessment tax return if they earn:
- Between £2,500 and £9,999 after deducting business expenses
- £10,000 or more before deducting expenses
Besides income tax on rents, expats need to be aware of extra taxes if they buy or sell a UK home from overseas.
Any home that is not a main residence is considered an additional home by HMRC. Stamp duty is payable on the purchase of an additional home at 3% above the rate a buyer based in the UK will pay – so there’s no zero-rate threshold and the base rate is 3% rising through 5% for a home worth between £125,000 and £250,000 to 15% for a property valued at £1.5 million or more.
Capital gains tax
Expats pay capital gains tax at the same rates as UK taxpayers – 18% for basic rate taxpayers and 28% for expats paying tax at the higher rate. Property disposals must be reported within 30 days of completing the handover of ownership.
Non-resident landlord scheme (NRLS)
The NRLS is a scheme to tax the UK rental income of persons who have a usual place of abode outside the UK – known as non-resident landlords. It does this by imposing on the UK letting agent an obligation to withhold tax on the rental income before it is paid to the overseas landlord. Landlords based outside the UK must register with HM Revenue & Custom’s Non-Resident Landlord Scheme. Non-resident for the scheme has a different meaning from non-resident for tax.
If you live abroad for 6 months or more per year, you’re classed as a ‘non-resident landlord’ by HM Revenue and Customs (HMRC) – even if you’re a UK resident for tax purposes.
If the rent is more than £100 a week, the letting manager – including a friend or relative – must deduct basic rate tax and pay the money on to HMRC. If there is no letting manager, the tenant must take on responsibility for deducting and paying the tax. Landlords must confirm the figures by filing a self-assessment tax return.
Picking a property manager
Picking someone you can rely on to manage the property is the first thing to consider. You can do this yourself remotely, or this could be a friend, relative or letting professional. Remote management across thousands of miles and different time zones is not easy unless you are very dedicated and don’t mind missing a lot of sleep. Arranging tenant viewings, managing repairs and sorting out the rent are time-consuming tasks for friends or relatives to shoulder. Working with a letting agent can be costly, (generally anywhere between 8% and 15% of the monthly rent plus VAT) but you should feel more relaxed that a professional is looking after your property. Another plus from working with an agent is any stress is removed from mixing business with pleasure in personal relationships.
Putting your property in the hands of a letting agent should cover the legal side of letting property, especially if the home needs a licence from the local council. Other factors to consider include yearly gas safety inspections, electrical safety reports (EICR) and energy performance certificates (EPC).
If the property is a shared home, you must have a house in multiple occupation (HMO) licence and comply with strict fire, health and safety standards.
On the financial side, the agent will protect any deposit, which should be kept safely for the tenant by law.
Breaking any of these laws can lead to huge fines, so it’s just as well to leave them in the hands of a reputable property manager.
UK mortgages for expats
If you have a standard UK mortgage on the home you intend to rent out, you must tell your lender, or you could breach the conditions of the loan. Some lenders will adjust the interest rate on a home that is rented out. It may be good idea to sort any mortgage arrangements before leaving the UK as you may have to switch to an expat loan once you are overseas.
Insuring your home while abroad
Standard home insurance will not offer the broader cover most landlords need, so specialist buy to let insurance is essential as this cover will offer protection for landlord contents, like white goods and furnishings as well as buildings insurance. Add-ons include legal cover to help with evictions, rent guarantee that pay when a tenant is in arrears and home emergency assistance, like calling a plumber to deal with leaks. Having adequate building insurance is typically a condition of any UK mortgage, so failing to arrange cover is a breach of the loan conditions.
If you are spending your rental profits in the currency local to where you currently are, you may be better off using a specialist broker for those transfers as banks can be very expensive.
UK banks also usually want customers to be UK resident, so check with your bank or building society about this before you go as you will need an account for collecting rents and paying any bills in the UK.
If you are interested in property in the UK, our property team offers a full turn-key solution that takes care of the full process:
- Identifying suitable property
- Obtaining a mortgage
- Purchase of property
- Finding tenant
- Managing the property on an ongoing basis
Get in touch with our team today.