SALF703 - Self Assessment for non-residents: taxation of UK property income of non-residents
Purpose of the rules
UK tax law and Double Taxation Agreements give the UK full taxing rights over the income of non-residents from property in the UK. These rules, introduced by FA 1995, are based on a single scheme for tenants and agents. Property agents (or, where there is no agent, the tenants) account for tax at the basic rate on property income net of expenses paid. The non-resident is able to set off any tax suffered by the agent against the corresponding tax due in his or her self assessment. However, the rules allow rent to be paid gross if the non-resident wishes and HMRC agree.
Circumstances in which the rules apply
ICTA88/S42A (1) and (2)
The rules apply to property agents who:
- act on behalf of persons whose usual place of abode is outside the UK (‘non-residents’), and
- receive property income, or have control over property income, of the non-resident.
Where there is no such property agent acting, the rules apply to the tenants instead.
Right of retention for agents and tenants
ICTA88/S42A (3)
An agent (or tenant) within the scheme is entitled to retain sufficient sums out of the property income to meet any tax liabilities arising. The agent is also entitled to be indemnified by the non-resident for sums due under the new rules.
The arrangements are in Regulations made by the Board of HMRC
ICTA88/S42A (1) and (4)
Details of the scheme are provided in regulations made by the Board of HMRC. These Regulations (SI 1995 No. 2902):
- prescribe the person who must operate the scheme
- provide that the prescribed person must:
- compute and account for tax (on a quarterly basis) at the basic rate on property income less expenses
- complete an annual information return showing property income, expenses and the tax liability arising in respect of each non-resident for which they act
- provide each non-resident for which they act with a certificate for the tax year, showing the tax retained from the non-resident’s rents. The non-resident will set-off this tax in his or her self assessment for the year.
Agents compute tax on property income received in the quarter less deductible expenses paid in the quarter. Tenants compute tax on property income paid in the quarter (excluding property income withheld by the tenant to meet deductible expenses paid on behalf of the non-resident).
The Regulations allow for rent to be paid gross in certain circumstances
ICTA88/S42A (4)
Non-residents can apply to HMRC to receive property income gross on the basis that:
- they do not expect to be liable to UK tax for the year in which the application is made
- they have complied with their UK tax obligations up to the date of application, or
- they have had no UK obligations up to the date of application.
Applicants undertake to comply fully with Self Assessment, amongst the other obligations imposed by statute, in making their application.
Interest and penalties
ICTA88/S42A (4), (5) and Section 98
Agents (and tenants) are liable to interest if tax is paid late and to penalties (under Section 98) for any failure to comply with the obligations set out in the regulations.