Renting out your home as an Expat
Last updated: 27 July 2016
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"Essentially any income which you receive from renting out your home is considered a UK income, and you will therefore be subject to UK income tax from rent received, if it surpasses the personal allowance level of £10,000 (as of April 2014)"
When moving abroad, many expats prefer to keep ownership of their primary home in order to generate an income by renting out their UK home.
If you are moving abroad, or maybe you’re already a non-UK resident, and are considering renting out your home, there are a number of factors you need to take into consideration, both now and in the future.
Managing your property and tenants
When renting out your home, you have a choice about whether you manage the property yourself from abroad, rely on friends/family to manage the property or find a property management agency who can manage your property for you.
If you choose to manage your property yourself, while you can save considerable costs, it can be considerably stressful. Things which you’ll need to consider include finding/replacing your tenants, being able to manage any repairs, being mindful of your tax residence status by returning home to manage your property.
By choosing a friend or family member to help you rent out your home, you are placing the responsibility and stress across a relationship which can cause tension. They may not be capable of effectively managing your house, and this could lead to you having to manage the property anyway.
The final option is to find a letting agent who is skilled in managing the property. Typically the agency will charge a fee of between 10% and 15% of your rental income over the year in exchange for offering an intermediary service which ensures that the property is well maintained, there are tenants and also that rent is collected in a timely fashion.
Tax considerations when renting out your home
Essentially any income which you receive from renting out your home is considered a UK income, and you will therefore be subject to UK income tax from rent received, if it surpasses the personal allowance level of £10,000 (as of April 2014). The government is also reviewing whether non-UK residents will receive a tax allowance, although it is currently still in place.
Non-Resident Landlord Scheme
The Non-Resident Landlord Scheme has been set up by HMRC to tax non-UK residents who are renting their UK home.
Through the scheme, if weekly rent exceeds £100 tax must be deducted from the rental income by either the letting agent or, if there is no letting agent, the tenants themselves before the rent is paid to the landlord.
However, a non-resident landlord can apply to have their rent received without tax deducted. If successful, the income is still subject to tax and therefore must be declared in the annual Self Assessment tax return.
When renting your UK home, your tax residence status is an important factor to take into consideration. If you intend to become and remain a non-UK resident, there are strict rules about how much time you are allowed to spend in the UK.
Just because you no longer live in the UK, it does not automatically mean that you are a non-UK resident. This will be determined by the Statutory Residence Test which the HMRC introduced in 2013 and incorporates, among other factors, the time you’ve spent in the UK in the current and previous tax years.
Depending on how you intend to manage your UK property will impact on how much time you will need to spend in the UK to manage tenants, conduct property improvements and other unforeseen circumstances.
Before you make any decision about how to manage your UK home, it is vital that you speak to a tax adviser to ensure that you understand what you travel restrictions are, and how they might impact your residency status in the UK.
Rental income tax calculations
There are a number of factors to consider when calculating the rental income tax you owe.
To assist you we have created a non-resident income tax calculator.
Managing your mortgage
If you have a mortgage on the UK home you intend to rent, it is important that you contact your mortgage provider and inform them about your intentions, before you make any decisions. Moving abroad and renting your home could see you in breach of your loan agreement, which could see your home repossessed.
Once living abroad, many expats decide to purchase a property in the UK and therefore require a UK expat mortgage, often buy-to-let.
As an expat, this is feasible, however the process is made substantially easier if you have a track record of having a UK mortgage already. It may therefore be sensible to keep a small mortgage on your UK property and pay small amounts to ensure you have a track record in the UK.
Currency and foreign exchange
Over recent years currency fluctuations between the pound, euro and dollar have meant that non-residents receiving an income by renting their UK home have been seen their real income change dramatically.
Most rent will be paid in sterling into a UK bank account, while non-UK resident landlords typically need to access the money in a different currency.
If you are considering renting your UK home, this is an important factor to consider.
One method of mitigating the risk is to open an account with a UK currency transfer company, rather than transferring money to a foreign bank account, to reduce charges and also receive a better exchange rate.
If you would like advice about currency management for non-residents, we have experts on hand to help you from UK Forex. For more information, please visit our expat currency management section.
Expat landlord insurance
When renting your UK property, it is important to have the right expat landlord insurance in place.
Ensuring your property is fully covered before you leave the UK is essential if you are planning to live or work abroad and will be are too far away to regularly check your property. It can also be difficult to find the right insurance policy, which isn't financially out of reach.
If you are renting your UK property, then a landlord’s UK property insurance for Expats policy should include the following cover:
- buildings and contents;
- rent arrears;
- potential legal costs with contract disputes and repossessions;
- malicious and accidental damage.
Get expert independent advice when renting out your home
If you are considering renting out your home it is essential to get expert advice about each of the considerations discussed in this article.
To request a free, no obligation discussion with one of our experts, simply enter your details via the form and we will arrange for one of them to contact you directly. The adviser will be able to discuss all elements of renting out your home as a non-resident including tax management, letting agent, mortgages and insurance.