Paying Tax on a rented property in the UK

[janda_grant2]

We pay our taxes here, and have now rented out a flat we own in the UK. What I'm not sure about is the tax implications. On the HMRC web site it states the managing agent should be deducting tax from the rent before paying it to us, but they don't seem to be doing so. Can anyone advise on how I go about sorting this out; and what, if any, allowances I can claim if the tax does have to be paid in the UK. Thanks

[hillybilly]

Yes, tax on rental income on rented UK property does have to paid in the UK.
There is lots of info about it on the IR website. Either the tax has to be withheld at source (by tenant or agent) and paid by them to IR or you apply to be a non-resident landlord (NRL)...if your tax affairs are in order in the UK they will grant you this status. Then you can receive the rent gross and just declare the income minus allowances (inc personal, expenses etc) on your annual self-assessment tax return.
If your agent withholds and pays the tax then you have to reclaim it...better to have it in your pocket methinks!
The agent won't automatically be withholding any tax on your behalf unless you've instructed them to and completed the relevant forms...

[Jool]

But there is a legal loophole and you can set your personal income tax allowances against it, wear and tear, Agent fees, and even mortgage interest........and still have the personal tax allowance here in Spain as well.....I have checked this so many times as it seems too good to be true but it seems it is really as I´ve said.

[hillybilly]

Yes, you benefit from 2 personal allowances...one for the UK and your one in Spain too!

[patchdog]

We rent our place out in UK and every year we fill in a tax return on line. Our letting agent does not withhold the tax at source. We have paid a couple of pence in tax, because of claiming for the cost of renewing and replacing stuff and the agents fee is tax deductable too. The on line procedure is easy and the site even allows you to edit the previous years form, this saves filling in the whole form again. You have to set up the on line procedure first and because the Revenue have to send you a password you need to allow a couple of months before you can access the actual tax form.

[baroness]

It's just a thought from a British tax payer, but I understood after talking to my UK tax officer in 1998, that I had to maintain a British address ( for post etc.) to claim any personal allowance. I was told that if I was domiciled in Spain for tax purposes I could not claim any personal allowance

[patchdog]

No that is incorrect, any post, even from the revenue, can be sent directly to your address in Spain.

[Pauly]

I'd be wary of advice on a Forum like this although I'm sure everyone is trying to keep you right. I'd go straight to the horses mouth and ask HRMC then you won't get any nasty shocks later. They are very helpful and it's no good telling them "oh, so and so said it was ok on a website forum" after the event

[hillybilly]

I'd be wary of advice on a Forum like this

Then why, pray tell, do you bother to frequent it?
Much as it obviously galls you, the fact is that there are some people out there who do actually know what they're talking about and are willing to help others who ask for advice by sharing their knowledge and first hand experiences.
Fact - you have to declare and pay tax in the UK on rental income arising in the UK.
Fact - you do get the benefit of a UK personal tax allowance on top of your Spanish one.
Fact - HMRC are more than willing to communicate with an overseas address.
Fact - you are supposed to declare your worldwide income to Hacienda if you are tax resident in Spain but you can show that tax has already been paid on it and you won't get taxed twice (although there may be a difference to make up of course) due to the dual taxation treaty.

[Mowser]

It's just a thought from a British tax payer, but I understood after talking to my UK tax officer in 1998, that I had to maintain a British address ( for post etc.) to claim any personal allowance. I was told that if I was domiciled in Spain for tax purposes I could not claim any personal allowance

Quite incorrect. I email once a year to the UK tax office enclosing scanned copies of bank details and my rebates are sent directly to my UK bank.

[Jool]

There is a significant difference between being tax domiciled and tax resident.

[Mowser]

Jool

I pay both Spanish & UK taxes. Domiciled in Spain and pay Spanish taxes. I pay UK taxes on my pension.

[Laslomas]

Same as Mowser. I live and work in Spain and make annual tax return in Spain. I have a Crown pension and therefore must pay tax on this in UK and I have a tax code in UK for this purpose. so I definately have tax code in each country. Plus I only have a spanish address.

[Jool]

I too pay taxes in both countries but see below which explains what I am referring to

first one taken from shelteroffshore.com

No matter where in the world you live, if you retain your UK domicile you will be subject to UK inheritance tax on your worldwide assets. Unlike your residence status which can easily be changed, domicile is far harder to shake off! Domicile is basically determined by where in the world you were born and where in the world your father was born – okay, so it’s not always that simple for all of us but if you and your father were born and raised in the UK you are of British domicile.

Even if you move to Spain to live permanently, chances are you will not be considered domiciled in Spain. If you really want to change your domicile (and in the case of Spain it won’t benefit you from a taxation perspective) you will need to dispose of all assets in the UK and sever all ties with Britain, seek to establish domicile in Spain and then contact HM Revenue and Customs in the UK and make sure they acknowledge this and tell you officially that you are no longer domiciled in Britain.

Under the assumption that you are highly unlikely to go to such lengths when it will provide you will no known benefit let’s assume you’re living in Spain and you have a home there which is jointly in your name and that of your spouse. Under Spanish law, upon your death because you are a British citizen British law is applied to your assets….this goes along with what I said earlier, i.e., if you’re British domiciled the UK tax man wants your assets when it comes to IHT!

Fortunately for your spouse, if you die your half of the property will pass to them inheritance tax free. If you had Spanish domicile however your spouse would actually have to pay tax on inheriting your half of the house!

http://www.taxationweb.co.uk/1-minute-g ... icile.html

[El Cid]

Fortunately for your spouse, if you die your half of the property will pass to them inheritance tax free. If you had Spanish domicile however your spouse would actually have to pay tax on inheriting your half of the house!

That paragraph is totally confusing and misleading.

If you have UK domicile then the surviving spouse will have no UK IHT to pay because transfers between spouses are exempt from UK IHT but, irrespective of tax residency or domicile, Spanish IHT will have to be paid on the half the surviving spouse inherits.

I am not sure what this has to do with tax on a rented property in the UK.

Sid

[Pauly]

I'd be wary of advice on a Forum like this

Then why, pray tell, do you bother to frequent it?
Much as it obviously galls you, the fact is that there are some people out there who do actually know what they're talking about and are willing to help others who ask for advice by sharing their knowledge and first hand experiences.
Fact - you have to declare and pay tax in the UK on rental income arising in the UK.
Fact - you do get the benefit of a UK personal tax allowance on top of your Spanish one.
Fact - HMRC are more than willing to communicate with an overseas address.
Fact - you are supposed to declare your worldwide income to Hacienda if you are tax resident in Spain but you can show that tax has already been paid on it and you won't get taxed twice (although there may be a difference to make up of course) due to the dual taxation treaty.

That's rather unnecessarily confrontational. It doesn't gall me at all and my advice was given in the same spirit as anyone else's. This is a complex subject -as demonstrated by the various and contradictory posts - that even professionals can get wrong. The difference is that they are liable for it. I would treat authorative tax advice from you as a civil engineer with the same caution as I would on your opinion on how to undertake heart surgery ...but if others are happy to rely on you, fair enough.

[hillybilly]

I have no idea what "authorative" (sic) tax advice is but I am certainly knowledgeable enough to be able to offer authoritative advice on the tax implications and workings of being a non-resident landlord in the UK because I was one for several years until recently.
Heart surgery? Never undergone it, don't know anyone who has, wouldn't deign to comment.

[Mowser]

Ooh! Handbags at 10 paces .... cat fight.

[patchdog]

U tellem Hilly

[janda_grant2]

Right so I do need to pay UK tax. Not a probem. Just for the record before posting on here I did email the overseas tax residents dept in Liverpool (where the HMRC web site said to contact) and to date they have not replied! So thanks to everyone who has replied, will try and get it sorted. (No need for handbags!)