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Tax Insider Tip: Non-Resident Landlord Scheme – Tax Planning

15th Jan 2014
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This is a sample tip taken from our 136 page guide: 101 Ultimate Tax Strategies Revealed.  Click here to receive a free copy of this tax saving guide today!

The ‘Non-Resident Landlord Scheme’ (NRLS) is a scheme for taxing the UK rental income of non-resident landlords. Usually basic rate tax is deducted from the net rent collected by an agent (less expenses paid) or paid by a tenant unless the agent/tenant has authority from HMRC under the NRLS to pay the landlord gross.

‘Non-resident landlords’ under this scheme are persons (individuals, companies, trustees) who are in receipt of UK rental income, and whose ‘usual place of abode’ is outside of the UK.

Although the scheme refers to 'non-resident' landlords, it is ‘usual place of abode’ and not residency that determines whether a landlord is within the scheme or not. 

An absence from the UK of six months or more determines that a person has a ‘usual place of abode’ outside of the UK. It is therefore possible for a person to be resident in the UK yet, for the purposes of the scheme, to have a ‘usual place of abode’ outside the UK.

Tax planning:

A ‘non-resident individual’ subject to income tax at the higher or additional rates might consider holding the property in a non-UK company.

Reasons:

An individual is taxed at the 40% or 45% income tax rates on the net rental profit whereas an overseas company pays corporation tax at 20% up to £300,000 net profit – the profit is likely to be much less than this amount.

Plus as the property is situated within the UK it will be subject to inheritance tax (IHT) if held by the individual as IHT is based on the location of assets. Companies are not subject to IHT.

However...such tax planning needs careful consideration as it was announced in the 2013 Budget that as from April 2013 not only will there be a levy where a company owns UK residential property valued at greater than £2m but also the capital gains tax (CGT) regime is to be extended to include the disposal of UK residential properties worth more than £2m by a non-resident, non-natural person or a disposal of shares or securities in a company holding such property by a non-resident person. This latter charge will not apply to genuine property businesses but will be charged on investment properties held within a company or trust.

This is a sample tip taken from our 136 page guide:
101 Ultimate Tax Strategies Revealed.

Click here to receive a free copy of this tax saving guide today!

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