UK tax on rental income as a non resident landlord

[ASB]

Apologies for a long post.

On behalf of a friend. It isn't me but for simplicity I'll use the first person.

I was not resident in England, where I owned a property jointly with my now ex (married) which was let. I was however resident not too far away, on an island which is not part of the UK and has its own parliament.

None of the income from the rental has been declared to the UK authorities. There was no intermediary in the rental arrangement. It was simply somebody paying me about 10k per annum for rental.

I have now received an enquiry from HMRC "we know you had some rental income".

Ok, so where next. Firstly it seems obvious that this is a business receiving scedule A (I think) income.

As such the taxable income is basically Gross less mortgage interest less other costs - either 10% depreciating of fixtures and fittings or specific expenditure.

I know the gross income. Everything else is difficult. The mortgage was about 100k. I have no idea of the rates and ex is unhelpful. However, I think it is fair to assume that the cheapest it could possibly have been would be around 4% (5 years ago). SO a "guessed" income charge of around 5k would seem fair.

Without even thinking of other costs this would then reduce the potential profit to around 5k.

The property was jointly owned with my ex. As such I believe that unless specific declaration is made to the contrary it is split 50.50. So that brings it down to 10k less 5k cost = 5k or 2.5k each (I guess 5k each is taxman is not prepared to accept any interest).

So, this reduces to one simple initial question. It is this.

If I am not uk resident and the only income I have that is chargeable to UK tax is from property do I still get a UK personal allowance ??

If the answer to that is yes then I'm OK. Since, broadly speaking, the maximum income that could be chargeable is about the same as the personal allowance was then. I've not been able to ascertain this despite looking, it seems a bit unclear.

Any pointers as to where to look would be great to try and find some reference so that I can respond intelligently to the enquiry.

I am now resident in the UK again and living in the house in question, though I don't believe this would make any difference.

[ASB]

More.....

HM Revenue & Customs: Tax on UK income or capital gains for non-UK residents

Tax-free allowances for non-residents
If you're a European Economic Area citizen (including British), or a current or former Crown employee, you will get the UK Personal Allowance to reduce the amount of UK Income Tax due. If you are a Commonwealth citizen you will only get the Personal Allowance for tax year 2009-10 and earlier years. You may still qualify in later tax years depending on the relevant double taxation treaty with the UK. Members of certain other special groups also qualify - see part 6 of the booklet HMRC6 'Residence, Domicile and the Remittance Basis' by following the first link below.

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Is it as simple as it seems? If I am an EEA citizen (I am according to my passport) then I will always get the personal allowance and this can be offset against any income?

For the avoidance of any doubt, all I want to do is ensure what is right is paid. With the numbers involved I believe it should be nil.

[Jessica@WhiteFieldTax]

Yes, you are on the right track. EEA residents are entitled to a UK personal allowance.

Estimate of the loan interest seems fine.

[ASB]

Yes, you are on the right track. EEA residents are entitled to a UK personal allowance.

Estimate of the loan interest seems fine.

Thanks Jessica. Even without allowing any loan interest income (taking half of it) would have been 4.5k per year which would be less than the personal allowances so no tax to pay. Only question then is any income received in the year of return since there would also have been some UK income then, but it looks as though any bill will be small or possibly even nothing overall.

Another point though. In the enquiry they were specifically asking for the previous six years. The letting of the property in fact predates this.

[Jessica@WhiteFieldTax]

Generally, unless there is fraud, they can only go back four years on assessments. Used to be six years, and I guess old habits die hard!

[ASB]

Generally, unless there is fraud, they can only go back four years on assessments. Used to be six years, and I guess old habits die hard!

Ok, from the enquiry:-

"Information in the poseesion of HMRC suggest that you may have been in receipt of rental incomefrom a property or properties at some time in the last six years. However I have been unable to trace any record of such income having been declared for tax purposes"

There then follow 10 questions to which answers are requested. Obviously these presuppose the truth of the assertion.

So should I perhaps just ignore these and offer something like:-

The property, which I now occupy myself after my return to the UK in 2006 has not been let in the past 6 years.

Should I even mention it was let before this?

Also there is a further thing which may perhaps be what they are looking for. Some casual accomodation has been provided for visiting students. The amounts received are modest and would be covered by the rent a room scheme anyway, though this was not declared (no tax return was filed).

Should I mention this? Perhaps something along the lines of:-

In recent years occasional accommodation has been provided to visiting foreign students. The amounts received have been lower than that allowed for under the rent a room scheme.

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Thanks.

[SueEllen]

When dealing with authorities only answer the questions they ask and no more as they will ignore them or dig deeper.

Also make sure there is some proof that you have lived in the property from that time.

[northernladuk]

Personally I would be as honest as possible, none of this 'should I tell them this or not tell them that'. You don't know how they know, it is possible someone has dobbed you in with a lot more information than you are aware of so the last thing you want to do is get caught out trying to be devious IMO. If they come down on you like a ton of bricks they will look through everything which could lead to more investigations. I believe most IR35 investigations come off the back of tax investigation.

Proving you lived in it is a lot more stringent that it used to be. Decades ago I proved I lived in one of my BTL's with a couple of months of bills. Now they need to see all sorts of information so they are wise to that one. I would go as far as to say if you haven't been living in it they will find out, only needs one slip up.

They know something has happened so don't try and pull the wool over their eyes. Be honest, pay what you are due and then disappear back off the radar never to be picked on again IMO. Only needs them to find one rental income from a period you say you were not letting it and you will have a full blown investigation plus possibly charges of fraud for lying when asked.

[ASB]

Personally I would be as honest as possible, ....

As I said it is being lived in by the person concerned since their return to the UK in 2006. It's pretty simple. I appreciate you are playing a certain amount of devils advocate (roughly phrased as "I reckon you might be lying :-)").

There is no question suggested of lying, or even being economical with the truth. Merely giving complete answer to the questions actually asked.

Indeed additional information is being offered, since they are in fact enquiring about rental income - quite specifically, I question whether income related to casual lodgings is in fact rental income (though it is of course potentially taxable).

Hence the question of whether or not to mention this.

As for evidencing it is lived in well, they only have to look. Council tax, electoral register, utility bills and contracts, bank account vehicl registration,child in local school. All the usual stuff. Would give the commissioner a good laugh I should imagine if they are trying to allege that it is activel let. Stanger things have happened I'm sure.

[SueEllen]

Personally I would be as honest as possible, none of this 'should I tell them this or not tell them that'. You don't know how they know, it is possible someone has dobbed you in with a lot more information than you are aware of so the last thing you want to do is get caught out trying to be devious IMO. If they come down on you like a ton of bricks they will look through everything which could lead to more investigations. I believe most IR35 investigations come off the back of tax investigation.

Which tend to come out of people giving the tax investigator too much information without the advice of someone legally qualified. Time and time again it's advised on this and other forums to be careful when dealing with tax authorities.

There is a difference between lying, and giving the information requested and no more than that.

Simply give the information requested. Also make sure you have proof to back it up.

If you don't have proof and were not on the electoral roll for the last 6 years from when you took up residence again seek legal advice.