By Shane McGinley
UK Revenue & Customs is to investigate Arab owners not declaring rental income for tax purposes
The UK is clamping down on Gulf landlords who have bought properties in Britain and have not declared the rental income earned on them to tax officials, a London-based international tax advisor told Arabian Business.
Under regulations set out by Her Majesty's Revenue and Customs (HMRC) – the UK’s tax gathering body – any person not resident in the UK but receives rental income from a property located in the UK is liable for pay tax on the earnings.
According to Trevor Wilkes, a tax adviser in the international division of London-based firm the Fry Group, this applies to both expatriate British landlords living in the Gulf and Arab investors who have bought properties in the UK.
“If the property is rented then as the rental income is regarded as UK arising income, irrespective of whether the landlord is UK resident or not, and irrespective of whether they are British or GCC National, the rental income will be potentially liable to tax and potentially declarable to HM Revenue & Customs,” Wilkes said, adding that HMRC officials were increasingly investigating overseas owners who have not declared their tax obligations.
“Where no declaration of the rental income has been made to the UK tax authorities and they catch up with the landlord at a later stage, depending upon the severity of the situation in not only reclaiming unpaid tax, interest, penalties and surcharges may be levied,” he added.
Under the regulations, if the property is managed by a professional letting agency, the agency is expected to withhold tax, starting at the base level of 20 percent, from the gross rental income before submitting it to the HMRC to obtain a tax clearance certificate.
“Those individuals who apply to have rent paid gross under the non-resident landlord scheme and receive a tax return to complete but do not return it to the tax authorities, run the risk of their approval to have rent paid gross being revoked,” Wilkes also warned.
A report by property consultants Jones Lang LaSalle (JLL) found Middle East investors accounted for nine percent of all JLL’s sales in central London in 2011, up from five percent in 2010, making them the second largest group of foreign investors behind nationals from Asia Pacific.
Large family homes in the wealthy areas of Marble Arch, Knightsbridge and Belgravia, ranging in value from $3m to $24m are the most popular properties amongst regional investors but a growing number are looking at investment opportunities in Marylebone and Fitzrovia, according to the firm’s Central London Residential Market report.
When Arabian Business called a leading real estate firm in central London posing as a Dubai agent seeking to buy a $5m residential investment property in Mayfair, the agent clearly stated that Middle East buyers were not required to pay tax on any rental income earned from the property.
This contravenes what is stated
in the HMRC guidelines and the advice offered by the Fry Group, and similar
experts who advice clients in the region when buying in the UK.
"Anyone who receives rental
income from the United Kingdom without deduction/withholding of tax… runs the
risk that they may incur penalties and other sanctions at a later date,” said
Tom O'Grady, a partner at Dubai law firm DLA Piper Middle East.
“It would be best for anyone
concerned to seek professional advice from a qualified tax advisor as to their
tax position in the UK if they receive rental income from UK property," he
This isn’t the first time Gulf-based owners have fallen foul of UK tax officials. Last year, it was reported Qatar-backed One Hyde Park, the world’s most expensive real estate project, was under investigation after it emerged the majority of owners development failed to pay council taxes.
Just nine of the 62 apartments in the London development, which is part-owned by Qatar’s prime minister, are registered to pay council tax by Westminster City Council, the Observer newspaper reported.
Candy & Candy, the development manager behind the property, had previously told Arabian Business in February 2010 that nearly a quarter of the apartments had been sold to Middle Eastern investors.
Every person with any income whatsoever arising in the United Kingdom is liable to pay tax to HMRC, regardless of their nationality or country of residence.
For income from a property there are allowances and deductions from what is taxable, which any good small local accountant anywhere in the United Kingdom can explain in writing and submit in your return on your behalf for around GBP 400 a year in total fees.
Ultimately the amount of tax should not be very large, particularly for properties owned by a married couple, for whom the basic tax free allowance would therefore be greater.
A small local chartered accountant is possibly cheaper and better for private landlords than someone outside the United Kingdom or a large firm.
Unless you paid for the property in Cash its unlikely you will pay any tax - mortgage fees and other allowances should offset all taxable income.
Ross, Thats not always the case and in my opinion a misleading comment. An annual review should always take place. Its worth knowing what actually constitutes as tax deductable expenditure. Tax should always be deducted by the tennent/agent come what may until HMRC issue an NRL7 or 10.