Renting out your home in the UK is one of the most frequent choices when you move abroad.
- provide you income,
- make sure you have a base to return to
- and make it easier to obtain further mortgages later on.
Renting out your home privately can be tempting but has some drawbacks
You might wish to cut out the middleman, find tenants and manage the maintenance and rent collection yourself – thus saving agency fees.
The drawback is that dealing with tenants and maintenance issues directly can be stressful and time-consuming. It’s an even bigger hassle if you happen to live in a different time zone.
In addition, when tenants move out, someone must carry out inventories, repairs are done and the return of the deposit negotiated.
Having to manage contractors from a distance is tricky. Furthermore, you couldn’t visit the property itself to check on the tenants and the property.
Most DIY landlords have to pay to use an agent or a website to find a tenant. You’d have to rely on good friends and family living near my property to always help you out with checking the property and organising maintenance.
Renting out your home in the UK: the tax you have to pay
You need to pay tax on your rental income if you are renting out your home in the UK. You may also need to pay tax if you make a gain when you sell residential property in the UK.
If you live abroad for 6 months or more per year, HM Revenue and Customs (HMRC) classifies you as a ‘non-resident landlord’, even if you’re a UK resident for tax purposes.
How to pay tax
You can get your rent either:
- in full and pay tax through Self-Assessment – if HMRC allows you to do this
- with tax already deducted by your letting agent or tenant
If you get your rent in full
- The Non-resident landlord: application to have UK rental income without deduction of UK tax – individuals (NRL1) is the form you must fill and send back to HMRC if you want to pay tax on your rental income through Self-Assessment.
- If HMRC approves your application, they will tell your letting agent or tenant not to deduct tax from your rent and you’ll need to declare your income in your Self-Assessment tax return.
- HMRC will not approve your application if your taxes aren’t up to date, eg you’re late with your tax returns or payments.
Or if you get your rent with tax deducted, your letting agent or tenant will:
- deduct basic rate tax from your rent (after allowing for any expenses they’ve paid)
- give you a certificate at the end of the tax year saying how much tax they’ve deducted
- If you don’t have a letting agent and your tenant pays you more than £100 a week in rent, they’ll deduct the tax from their rent payments to you.