Corporation Tax for non-resident landlords – An explainer

Do you spend most of the year living outside of the UK, but receive rental income from properties you own here? Then you may qualify as a non-resident landlord.

Non-resident landlords are subject to a variety of regulations, especially when it comes to the taxation of profits. But with regular changes to reporting requirements in the UK, tax can be a difficult area to grasp for those residing abroad.

So, for ease, we’ve written this guide to explain how everything works, with a particular focus on Corporation Tax.

What is a non-resident landlord?

A non-resident landlord owns and collects rental income from UK properties but doesn’t qualify as a resident for tax purposes.

Determining if a landlord is a tax resident is simple. The Statutory Residence Test (SRT) was launched in April 2013 for this very purpose:

• Anyone who spends less than 16 days in the UK within a tax year is a non-resident.
• Anyone who spends more than 183 days in the UK within a tax year is (almost always) a resident.
• Anyone who spends between 16 and 183 days in the UK within a tax year will require further assessment of their “ties” to the UK to determine residency.

You can find out more about the Statutory Residence Test in our guide, but, in short, if you:

• Spend less than 183 days in the UK each year, and;
• Your connections to the UK are limited, and;
• You own residential property in the UK which generates rental income

Then you may be classified as a non-resident landlord. But what does being non-resident mean for your property portfolio? And how will it affect your tax obligations?

Do non-resident landlords pay tax in the UK?

Yes, non-resident landlords are liable to pay tax on the income generated by rental properties in the UK.

That said, the mechanism for paying tax is different depending on whether you own a rental property as an individual or through a company.

Individual ownership

Individual non-resident landlords are covered by the Non-Residential Landlord Scheme.

Under this scheme, the letting agent or tenant of a rental property deducts the basic rate of income tax (20%) from the monthly rental payment and, instead, pays it directly to HMRC. The remainder is paid to the landlord.

Non-resident landlords can apply to receive their rental income without the tax deduction, allowing them more control over their cash flow and tax affairs. You can read more about it here:

Understanding the UK Non-Resident Landlord Scheme: A guide for landlords

Company ownership

The law for non-resident landlords that own property through a company has changed in recent years.

Until 5 April 2020, non-resident (company) landlords receiving UK rental income were required to file returns under the income tax regime and pay tax at a rate of 20%.

However, since 6 April 2020, non-resident landlords have instead been subject to the UK’s Corporation Tax regime.

Any non-resident companies within the self-assessment scheme at the time of the change in regulations were automatically registered for Corporation Tax and sent a Company Unique Taxpayer Reference (UTR).

New non-resident companies must register and notify HMRC of chargeability to UK Corporation Tax within three months of becoming chargeable.

Corporation Tax for non-resident (company) landlords

What rate do you pay?

Non-resident (company) landlords are liable to pay the main rate of Corporation Tax of 25% on all profits.

Again, this is something that has changed in the last few years. A single rate of 19% Corporation Tax was applied to all companies up until 31 March 2023. So, if you’re a long-term non-resident company in the UK, this may explain why you’ve seen a reduction in net profitability.

Are there any other requirements?

Yes, the switch to Corporation Tax for non-resident companies has added several administrative steps.

As a non-resident company, you must:

• Prepare and file a company tax return (form CT600) with HMRC. This includes providing detailed information about rental income, expenses, and any other relevant financial activities.
• Alongside the CT600, the company must submit financial statements that adhere to UK accounting standards. These should include a profit and loss account and a balance sheet.

The Company Tax Return must be filed within 12 months after the end of the company’s accounting period. Separately, Corporation Tax must be paid within nine months and one day after the end of the accounting period.

Failure to file the Company Tax Return or pay on time can result in penalties and interest charges.

There are other requirements, too.

If the company owns residential property worth over £500,000, it may be liable to pay the Annual Tax on Enveloped Dwellings (ATED). If you think this applies to your situation, then check out our guide to discover everything you need to know about ATED.

Finally, large companies, generally those with profits over £1.5 million, may need to make quarterly instalment payments of Corporation Tax.

Note: Non-resident companies should prepare for future digital record-keeping and reporting requirements. HMRC plans to extend Making Tax Digital (MTD) to Corporation Tax, although it’s unlikely to be implemented before April 2026. 

Are there any allowable deductions or reliefs?

Non-resident (company) landlords can reduce their taxable income through allowable deductions, thus reducing their Corporation Tax liability.

Common deductions include:

• Costs of maintaining and repairing the property. For example, painting and decorating, damp treatment, fixing broken appliances, etc.
• Interest paid on loans taken out to buy or improve the property can be deducted
• Fees paid to property management companies for services such as rent collection, tenant management, and maintenance can be deducted
• Premiums paid for insuring the property
• If the property is leasehold, service charges paid for the maintenance of communal areas can be deducted

Additionally, certain reliefs, such as capital allowances, for items like furniture may apply, although it’s best to discuss these with an expert to see what does and doesn’t qualify. You can speak to our specialists to find out more by filling in a contact form.

Example scenarios

To help understand how this all works, let’s work through a couple of examples.

Example one

ABC Ltd is a company based in Hong Kong but owns multiple rental properties in the UK, all worth under £500,000. The company earns £100,000 in rental income annually but incurs £30,000 in allowable expenses.

• Taxable Income: £100,000 – £30,000 = £70,000
• Corporation Tax Rate: 25% on £70,000
• Tax Payment: £17,500
• ATED: £0
• Profit After Tax: £70,000 – £17,500 = £52,500

Example two

DEF Ltd, based in Canada, owns a residential property in the UK worth £600,000 and earns £36,000 in rental income annually. The company incurs a total of £11,500 in allowable expenses.

• Taxable Income: £36,000 – £11,500 = £24,500
• Corporation Tax Rate: 25% on £24,500
• Tax Payment: £6,125
• ATED: £4,400
• Profit After Tax: £24,500 – £6,125 – £4,400 = £13,975

So, what next?

Corporation Tax for non-resident landlords can be challenging, but understanding the key requirements and obligations is a critical first step to compliance.

As you move forward, here are some key takeaways to keep in mind:

• Use the Statutory Residence Test to establish if you qualify as resident or non-resident for tax purposes
• There are different mechanisms for paying tax as a non-resident landlord, based on whether you own the property individually or through a company
• Non-resident companies are subject to a 25% Corporation Tax rate and must meet specific filing and payment deadlines
• You can reduce taxable income by claiming allowable expenses, such as maintenance, loan interest, and management fees
• Be prepared for future changes, including the implementation of Making Tax Digital for Corporation Tax

Managing these requirements can be daunting, especially with the prospect of penalties and charges, but we can help.

Our Corporation Tax specialists have years of experience working with non-resident landlords. Contact us today for a free, no-obligation consultation.