Foreign pension funds set for tax refunds on UK property income

UK tax for property investors

Non-UK residents are, in principle, liable to tax on UK sourced income. Tax is generally collected before income is received by requiring the UK-based payer to withhold an amount and pay it to Her Majesty’s Revenue and Customs (HMRC).

For most types of income, UK rules limit the non-resident’s liability to any tax withheld. Ultimately this could mean that little or no tax is incurred in circumstances where EU/UK rules, or a treaty between the UK and the non-resident’s home country, remove or limit the payer’s withholding obligation.

A different regime, however, applies to property income. Non-residents (other than individuals, who are taxed at the rates applicable to UK-resident individuals) are taxed at the basic rate (currently 20%). Tax must be withheld in full unless a relevant treaty specifies a lower withholding rate or HMRC have allowed income to be paid gross. Any tax not withheld must be accounted for through the self-assessment scheme.

This article was first published in Investment & Pensions Europe. View the full article here.