PROPERTY ARTICLE: Non resident landlords & tax. Copyright SvD.

 

Non-resident landlords and tax:

As a landlord, you have an obligation to pay tax on rental income to the HM Revenue & Customs. The same applies if you are non-resident.  Many of my Arab clients are based abroad but spend time occasionally in the UK. If they own a property in London and rent it out they remain liable for income tax even though they reside abroad.

Usually the letting agent’s Terms of Business will request that the landlord declare if they are resident or non-resident. The agent is responsible for ensuring that the landlord is in possession of an approval certificate from the HMRC, which grants the landlord the right to receive rent without tax being deducted at source. This is known as the Non Resident Landlord Scheme (NRL). The tenant can also request sight of the HMRC approval certificate before paying over the rent. The tenant is entitled to withhold the rent until they are satisfied that the relevant documentation and approvals are in place. The NRL approval number granted to the landlord is normally noted in the tenancy agreement and a copy of the approval of certificate is given to the tenant for their files.

The process of applying to the HMRC for tax exemption under the NRL scheme is quite straightforward and is usually done by the landlord’s accountant or letting agent. If the letting agent is receiving the rent on behalf of the landlord, and is not in possession of the exemption certificate, the agent will be required to deduct tax and pay this over to the HMRC on a quarterly basis. The agent will then be required to send a tax deduction certificate to the landlord accounting for the tax they have paid on his/her behalf.

Make no mistake- the HMRC will investigate agents and examine their records to satisfy themselves that the agent is not contravening the tax requirements of landlords, be they resident or not. It really is not a risk worth taking and I would recommend that landlords declare their rental income rather than incur the wrath of the HMRC. For more information, visit the HMRC website: http://www.hmrc.gov.uk/international/nr-landlords.htm

The case for management:

Letting Agents offer a service known as Management to landlords which typically includes the collection of rent and the carrying out of repairs and gas and electrical inspections (which by law are required on an annual basis). Agents charge 5% of the annual rent for this service (plus VAT). I used to manage around 50 properties and I can tell you that it was a monumental headache. I really never saw how waiting on the phone for hours for the gas company to confirm an appointment, then sitting in the flat for hours waiting for them to show up, could make financial sense. To me, management is a loss-making venture as the time spent solving problems is not translated into revenue. Some agents do manage to turn it into a profitable sideline by charging a percentage on top of any repair bills. For example, a plumber may present a bill for £200. and the agent adds, say, 20% on top of this before passing it on to the landlord (usually the landlord provides a float – around £500. which the agent has to use to pay bills. This sum comes out of the rent and the agent will normally top it up every quarter.) The agent would have therefore made a profit of  £40. on the plumber’s bill not to mention the 5% of the annual rent they are already charging. Landlords should be diligent and ask for copies of all bills to be included in the quarterly statement provided by the agent.

In the event that a repair costs more than the agreed float, landlords should ask for several quotes to ensure that they are being charged a fair price. For example, if the property needs a new boiler, the landlord should insist that the agent obtain three or four quotes before authorising the work. The replacement of a boiler can cost anywhere from £2,000. upwards. It is also wise to have a contract with a reputable gas supplier which offers service contracts and emergency call outs for a set fee per month- explore all of these options with your letting agent who should be able to advise you and operate in your best interests at all times.