Taxation Information for Landlords
The Finance Act 1995 and Taxation of Income from Land (Non-Resident) Regulations 1995
Both the Letting Agent (or Tenant where there is no Letting Agent) and the overseas Landlord are obliged and responsible to deduct tax from the rental income.
Letting Agents are required BY LAW to withhold tax from rental income unless specifically exempted in writing by HMRC. Exemption is expressed by means of a letter detailing an Approved Number. This is commonly referred to as Exemption Certificate although HMRC terminology is Approved Number. The Letting Agent is required to:
- Register with HMRC details of ANY Landlord (and property) for whom the agent had received income during the year, along with details of the gross income for each.
- Account for and pay over quarterly, tax at the current rate on the net rent less allowable expenditure within 30 days of each quarter end for Overseas Landlords (i.e. non residents).
- Forward to HMRC an Annual Statement detailing income and expenditure and showing the payments made to HMRC on behalf of each Overseas Landlord by the 5th of July each year.
- Issue to the Landlord a certificate in a prescribed form stating the tax payable for the year according to the returns submitted by 5th of July each year.
The Landlord can apply for an exemption from deduction by the agent from HMRC whereby rental payments may be made to them without tax being deducted, subject to the submission of an Annual Statement of income and expenditure and the net tax liability to HMRC. ONLY Landlords can make the application and ONLY on receipt of confirmation FROM HMRC DIRECT to the Letting Agent in the form of a letter of exemption detailing an Approval Number can the agent pay rents gross to the Landlord.
HMRC will impose the following conditions on the Landlord before issuing the Tax Exemption Certificate:
- The Landlord’s UK Tax liabilities must be up to date
- The Landlord agrees to fully comply with the requirements of Self-Assessment *
- Failure to comply with any of these conditions will result in HMRC withdrawing the exemption, following which the Letting Agent will be instructed to commence withholding tax from the date of receipt of notice of withdrawal.
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Please note these are general guidelines which are accurate at the time of compilation. We are however not qualified accountants and therefore strongly recommend that you take independent tax advice.
* Under Self-Assessment, taxpayers are required to calculate their own tax liability and submit figures to HMRC directly or via their tax adviser. HMRC can provide an information pack and guidance notes to assist you in this matter.