Who Is Considered a Non-Resident?
For tax purposes, a non-resident is someone who does not live in the UK but earns income from UK-based sources. While your daily life might take place overseas, the UK may still tax you on income that arises within its borders. Being a non-resident means that HMRC will only charge tax on your UK income—not on income earned overseas—provided you meet certain conditions.
Non-resident status is especially relevant for individuals with UK rental properties, pensions, or investments. Even if you’ve lived abroad for many years, failing to properly assess your status each tax year can lead to unexpected liabilities or missed tax reliefs.
Understanding the UK Tax Year
Before diving into the rules that govern residency status, it’s important to understand how the UK tax calendar works. The UK tax year starts on 6 April and ends on 5 April of the following year. Your residency status is determined separately for each tax year, which means that changes in your travel pattern or work arrangements can shift your status from one year to the next.
It’s also possible for a tax year to be split into two parts: a resident part and a non-resident part. This is known as split-year treatment and usually applies in the year of arrival in or departure from the UK. While not automatic, this relief can reduce your UK tax exposure in transitional years.
How HMRC Determines Residency
Residency is not solely determined by where you live, but rather by a set of criteria outlined in the Statutory Residence Test. HMRC introduced this test to provide a clear and structured way of deciding whether someone should be treated as a resident or non-resident for tax purposes.
The test evaluates residency in three steps:
- Automatic Overseas Test
- Automatic UK Test
- Sufficient Ties Test
Let’s examine each component of the test in more detail.
Automatic Overseas Test
You will automatically be considered a non-resident for tax purposes if you meet any of the following conditions:
- You spent fewer than 16 days in the UK during the tax year, or fewer than 46 days if you were not a UK resident in any of the three previous tax years.
- You work full-time overseas, which means working at least 35 hours per week on average, spending fewer than 91 days in the UK, and working no more than 30 days in the UK within that tax year.
This test is particularly relevant for individuals on international work assignments or long-term expatriates who return to the UK infrequently.
Automatic UK Test
You will automatically be considered a UK resident for tax purposes if:
- You spend 183 days or more in the UK in the tax year.
- Your only home is in the UK and you lived there for at least 30 days during the year. The property must have been available for use for at least 91 consecutive days.
- You worked full-time in the UK for a period of 365 days, and at least one of those working days falls within the current tax year.
These conditions apply even if you maintain homes abroad or travel extensively.
Sufficient Ties Test
If neither the automatic overseas nor the automatic UK test applies, HMRC uses the sufficient ties test to determine your residency. This test assesses your connections to the UK based on the number of days you spend in the country and the nature of your ties.
The ties HMRC considers include:
- Family tie: If your spouse or minor children live in the UK.
- Accommodation tie: If you have access to accommodation in the UK that is used for at least one night.
- Work tie: If you work in the UK for 40 days or more during the tax year.
- 90-day tie: If you’ve spent 90 or more days in the UK in either of the last two tax years.
- Country tie: Applies if you spent more time in the UK than in any other single country during the tax year.
The more ties you have, the fewer days you can spend in the UK without becoming a resident. For example, someone with four ties may become a resident if they spend more than 15 days in the UK during the year.
Why Tax Residency Status Matters
Your UK tax residency status directly determines what income you must declare and where it is taxed. If you are a UK tax resident, you are liable to pay UK tax on your worldwide income and gains. This includes salary, rental income, dividends, and pensions, even if earned outside the UK.
As a non-resident, you are only taxed on your UK-source income. This generally includes:
- Rental income from UK property
- Interest from UK savings accounts
- UK pensions
- Dividends from UK companies
- Profits from a UK business
This limitation means that if your income is entirely foreign-sourced, and you are considered a non-resident, you may have no UK tax liability at all.
Double Taxation Relief
To avoid being taxed twice on the same income—once in the UK and again in your country of residence—the UK has entered into double taxation agreements with more than 120 countries. These treaties help determine which country has taxing rights over certain types of income and offer relief in the form of tax credits, exemptions, or reduced rates.
For example, under many treaties, pension income may be taxable only in the country where you reside, even if the pension is paid from a UK source. Rental income, however, is often taxed in both countries, but you may be eligible for relief in your country of residence for the tax already paid in the UK.
Claiming relief under a double taxation agreement usually involves filing the correct forms with HMRC and the tax authority of your home country. Documentation and timing are crucial. Failure to claim relief can result in overpayment or complicated refund processes later.
Notifying HMRC About Your Status
It’s your responsibility to inform HMRC when your tax residency status changes. If you’re leaving the UK permanently or for an extended period, you can submit a form P85. This form is used to claim a tax refund (if due) and declare that you are no longer a UK resident.
You may also need to complete a Self Assessment tax return, especially if you continue to receive income from the UK. The return includes a section for non-residents to provide details of UK-source income and any reliefs being claimed.
Even if you believe you owe no tax, failure to file or inform HMRC can result in penalties or assumptions that you are still a UK resident.
Filing Tax Returns as a Non-Resident
Most non-residents who receive taxable UK income must complete a Self Assessment tax return. This applies particularly to those who earn rental income, run a UK business, or receive a pension above the tax-free threshold.
The standard HMRC online system does not support submissions from outside the UK, which means you must either:
- Use HMRC-approved third-party tax software
- Appoint a UK-based tax agent or accountant
Deadlines for filing remain the same as for residents. Paper returns must be submitted by 31 October following the end of the tax year, while online returns must be filed by 31 January. Late submissions result in automatic penalties.
What Income Is Taxable for Non-Residents?
As a non-resident, only your UK-source income is subject to tax. The most common forms include:
- Rental income: Taxed under the Non-Resident Landlord Scheme
- UK pensions: State and private pensions may be taxable, depending on the treaty
- Interest: From UK bank and building society accounts
- Dividends: From UK-registered companies
- Business income: If the business is conducted in the UK
Each category of income has its own rules regarding allowances and reliefs. For example, rental income may be eligible for the £1,000 property allowance or deductions for expenses.
Retaining or Losing the Personal Allowance
The personal allowance is the amount of income you can earn before tax is due. For the 2024–25 tax year, the personal allowance is £12,570. Some non-residents are still eligible for this allowance, depending on their country of residence and the existence of a double taxation agreement.
Eligibility for the personal allowance usually depends on whether the treaty includes a non-discrimination clause or reciprocal treatment. For residents of countries without such agreements, the personal allowance may not be available, increasing their tax burden. The allowance also tapers for higher earners. It begins to reduce once income exceeds £100,000 and disappears entirely once income reaches £125,140.
Taxation on UK Rental Income
Owning property in the UK can be a valuable investment, even if you live overseas. Many British expatriates and overseas investors retain or acquire UK residential and commercial properties, generating income through rent. However, non-residents must understand that rental income from UK properties remains taxable by HMRC, regardless of where the landlord resides.
We focus on the tax obligations of non-residents who earn rental income from UK property. This includes understanding the Non-Resident Landlord Scheme, available tax reliefs and deductions, and how to calculate what you owe.
Non-Resident Landlord Status
Living outside the UK for more than six months in a year and receiving rent from UK property qualifies you as a non-resident landlord, even if your official tax residency status under HMRC rules is still in transition.
This distinction matters because rental income is specifically governed under the Non-Resident Landlord Scheme. Whether you are a British national temporarily living abroad or a foreign investor, this classification impacts how your tax is handled.
Non-resident landlords do not automatically pay their tax via annual returns. Instead, the UK system allows letting agents or tenants to deduct basic rate tax from the rent before it is paid to the landlord and remit that tax to HMRC on a quarterly basis. This ensures the UK government collects tax even if the landlord is overseas.
Understanding the Non-Resident Landlord Scheme
The Non-Resident Landlord Scheme (NRLS) is a tax collection system that applies to non-resident landlords. Its main function is to withhold tax at source to ensure compliance and protect tax revenues.
Under the NRLS:
- Letting agents or tenants must deduct 20 percent tax from the gross rent they pay to a non-resident landlord.
- These deductions must be sent to HMRC on a quarterly basis.
- The landlord can later reclaim allowable expenses and determine the final tax bill through their Self Assessment tax return.
This arrangement can create cash flow issues, as tax is deducted before expenses like mortgage interest, maintenance, or agent fees are accounted for.
Applying to Receive Gross Rent
To avoid tax being deducted at source, landlords can apply to HMRC to receive rental income in full without tax withholding. If approved, the landlord will instead declare the rental income and pay any tax due through their Self Assessment return.
To apply for this, landlords need to:
- Complete form NRL1 (for individuals), NRL2 (for companies), or NRL3 (for trustees).
- Submit it to HMRC along with any supporting documentation.
- Wait for written approval before instructing tenants or agents to stop deductions.
This arrangement is usually beneficial if the landlord expects allowable expenses to significantly reduce their taxable rental income or if their total UK income remains below the personal allowance threshold.
What Counts as Rental Income?
Rental income is not just the monthly rent paid by tenants. HMRC considers the total income received from letting out property, which can include:
- Rent payments
- Non-refundable deposits
- Payments for additional services such as utilities, cleaning, or furnishing
- Insurance payments covered by tenants
- Charges for use of communal facilities or parking
It’s essential to accurately report all components of rental income. Failure to declare any part of it can lead to penalties, especially if it is later discovered during an HMRC compliance check.
Allowable Expenses and Deductions
To calculate the amount of rental income subject to tax, landlords can deduct a range of allowable expenses. These expenses must be wholly and exclusively incurred for the purpose of renting out the property. Common deductions include:
- Letting agent fees
- Property management costs
- Maintenance and repairs (not improvements)
- Buildings and contents insurance
- Council tax and utility bills (if paid by the landlord)
- Legal and accounting fees related to the rental business
- Cleaning and gardening services
- Replacement of domestic items (furniture, white goods, etc.)
- Ground rent and service charges
- Mortgage interest (for buy-to-let mortgages, subject to interest relief rules)
Capital improvements, such as building an extension or fitting a new kitchen that significantly upgrades the property, cannot be deducted against rental income. However, they may be considered for Capital Gains Tax purposes if the property is sold in the future.
Mortgage Interest Relief
Since 2020, landlords can no longer deduct the full amount of mortgage interest as an expense. Instead, they receive a basic rate tax credit of 20 percent on interest payments. This affects higher-rate taxpayers more severely, as the relief is now limited to the basic rate, regardless of their personal tax band.
For example, if you pay £10,000 in mortgage interest, you no longer deduct it from your rental income. Instead, you claim a tax credit of £2,000 (20 percent of £10,000) against your final tax bill.
The Property Allowance
If your rental income is modest, the property allowance can simplify tax reporting. The first £1,000 of rental income is tax-free. If you claim the property allowance, you cannot also claim expenses.
This allowance is particularly useful for occasional or low-income landlords. If you co-own the property, each owner is entitled to a separate £1,000 allowance, potentially covering up to £2,000 tax-free rental income for a jointly owned property.
If your rental income is below £1,000, you do not need to report it to HMRC. However, if you choose to claim the allowance and your income is above this threshold, you still need to complete a tax return.
Eligibility for the Personal Allowance
Non-residents may still qualify for the UK personal allowance—£12,570 for the 2024–25 tax year—depending on their country of residence and whether a relevant tax treaty is in place.
The UK has tax treaties with many countries, and many of these allow residents to claim the personal allowance even if they live abroad. However, this is not universal. Residents of some countries are not entitled to claim the personal allowance, making the first pound of UK income taxable. In addition, the personal allowance tapers once income exceeds £100,000 and is entirely eliminated at £125,140 and above.
Calculating Your Taxable Income
To work out the tax you owe on UK rental income, follow these steps:
- Add up your total rental income received during the tax year.
- Deduct allowable expenses if not claiming the property allowance.
- If applicable, deduct the property allowance or the personal allowance.
- Apply the appropriate tax rates to the remaining income.
Tax rates for 2024–25 are as follows:
- 20 percent on income up to £50,270 (basic rate)
- 40 percent on income from £50,271 to £125,140 (higher rate)
- 45 percent on income above £125,140 (additional rate)
If tax has already been deducted at source through the NRLS, this can be claimed as a credit on your tax return.
Joint Ownership and Income Splitting
If you own the rental property jointly with another person, such as a spouse or civil partner, rental income is typically split 50:50 by default. However, if the ownership shares are different, you can elect to split the income in proportion to ownership.
To change the default split:
- The property must be jointly owned in unequal shares.
- A declaration of beneficial interest (Form 17) must be submitted to HMRC.
- Evidence, such as a deed or agreement, must support the claim.
This approach can be used for tax efficiency, especially where one partner has unused allowances or is in a lower tax bracket.
Filing a Self Assessment Tax Return
Non-residents with UK rental income exceeding £1,000 must file a Self Assessment tax return. This applies even if tax has already been deducted by a letting agent or tenant. The return includes supplementary pages to report property income and allows landlords to claim deductions and reliefs.
Deadlines for filing are:
- 31 October (paper returns)
- 31 January (online returns)
Tax owed is also due by 31 January, along with any payments on account for the next year. Late filings result in automatic penalties, even if no tax is due.
Commercial Software or Professional Help
Since the HMRC website does not support filing Self Assessment returns from abroad, non-resident landlords must either:
- Use commercial software approved by HMRC that supports overseas submissions
- Appoint a UK-based tax adviser or accountant to file on their behalf
Using professional assistance can be beneficial, especially when dealing with complex cases, multiple properties, capital allowances, or foreign currency transactions.
Tax Relief on Repairs and Replacements
One common area of confusion is distinguishing between repairs and improvements. Repairs, such as fixing a boiler or repainting, are deductible. Improvements, such as upgrading to a more luxurious bathroom, are not immediately deductible against rental income but may be used to reduce Capital Gains Tax on sale.
You can also claim for the cost of replacing furniture and appliances through the Replacement of Domestic Items Relief. This includes:
- Sofas, beds, and tables
- Carpets and curtains
- Fridges, cookers, and washing machines
The item replaced must have been provided as part of a furnished rental. You can only claim for the cost of the replacement, not the original purchase.
Dealing with Vacant Periods
Even if a property is vacant for part of the year, expenses incurred during that time may still be deductible if the property was genuinely available for rent. Advertising costs, maintenance, and standing charges for utilities may all qualify, provided the intention to remain active.
However, if you use the property personally during vacant periods, even briefly, HMRC may disallow some expenses, especially those linked to personal use rather than the rental business.
Record-Keeping Requirements
Good record-keeping is essential. HMRC recommends retaining records for at least five years after the Self Assessment deadline. Documents to retain include:
- Rent statements and bank records
- Invoices and receipts for repairs, maintenance, and services
- Mortgage interest statements
- Tenancy agreements
- Communication with letting agents or tenants
- Evidence of residency status or tax relief claims
Incomplete or missing records can make it difficult to support your deductions and could result in HMRC adjusting your tax return or imposing penalties.
Capital Gains Tax on UK Property
Non-residents were previously exempt from UK capital gains tax (CGT) on the disposal of UK residential property. However, since April 2015, the UK government introduced new rules requiring non-residents to pay CGT on gains made from selling UK residential property. These rules were extended in April 2019 to include all UK property and land, including commercial property and indirect disposals through shares.
Who Must Pay CGT
You may be liable for CGT if you are a non-resident and:
- Sell a UK residential or commercial property
- Sell shares in a company that derives at least 75 percent of its value from UK property
- Dispose of a UK property interest held in a trust or through a partnership
CGT applies regardless of your residency status if the asset is UK-based. However, exemptions and reliefs may apply depending on your personal circumstances, usage of the property, and any available treaty relief.
Reporting and Payment Deadlines
If you are liable for CGT, you must:
- Report the sale to HMRC within 60 days of completion
- Pay any CGT due within the same 60-day window
This applies even if you already file a Self Assessment return. The 60-day requirement ensures timely reporting and payment from overseas sellers. Late reporting can result in interest and penalties, even if no CGT is ultimately owed.
How CGT is Calculated
Capital gains are calculated as the difference between the selling price and the purchase price (or market value at acquisition), minus any allowable costs. These may include:
- Purchase and sale-related legal or professional fees
- Stamp duty paid on acquisition
- Capital improvement costs
- Estate agent fees
The annual CGT exemption—called the Annual Exempt Amount—is £3,000 for the 2024–25 tax year. This amount is deducted from total gains before tax is applied.
CGT Rates for Non-Residents
The rates for capital gains tax on UK property are:
- 18 percent for basic rate taxpayers
- 28 percent for higher and additional rate taxpayers
These rates apply to gains on residential property. For non-residential property and other assets, the rates are 10 percent and 20 percent, respectively.
Rebased Property Values
For properties acquired before April 2015 (residential) or April 2019 (non-residential), gains are only calculated on the increase in value since that date. This process is called rebasing. If rebasing results in a higher gain, you may instead opt to use the original purchase price. You can choose the method that produces the lowest tax liability.
Principal Private Residence Relief
If you previously lived in a UK property as your main home, you may be eligible for Principal Private Residence (PPR) relief. Non-residents can claim this only if they meet the 90-day rule, which requires spending at least 90 days in the property in each tax year during the ownership period.
If eligible, part of the gain from the sale may be exempt from CGT, depending on the duration and nature of use as a primary residence.
Selling Shares as a Non-Resident
Most non-residents are exempt from paying CGT on gains from selling shares, unless:
- The shares are in a property-rich company (with 75 percent or more of its value from UK property)
- The individual owns at least 25 percent of the company during a two-year period ending on the disposal date
If either condition applies, the disposal may be taxed under the extended non-resident CGT rules. Otherwise, share sales by non-residents generally fall outside the scope of UK CGT.
UK Pension Income for Non-Residents
If you live abroad and receive a UK pension—state, workplace, or private—it is typically taxable in the UK. However, whether the UK or your country of residence has taxing rights depends on the relevant double taxation agreement.
Pensions are normally taxed as follows:
- The UK state pension is subject to UK income tax
- Occupational and personal pensions are also taxable as UK income
- Most lump sums from pensions (such as the 25 percent tax-free lump sum) remain tax-free in the UK, but may be taxed abroad
The UK retains taxing rights over pensions under many treaties, though in some cases, taxing rights may shift to the country of residence. Each treaty differs, so it is important to check local rules.
UK State Pension Taxation Abroad
If you receive the UK state pension while living overseas:
- It continues to be paid into your UK or foreign bank account
- It remains taxable in the UK if your total UK income exceeds the personal allowance
- You may not receive annual increases unless you live in a country with a social security agreement
The personal allowance of £12,570 applies if you qualify under a double taxation treaty or are a UK national living in certain countries. You may choose to have tax deducted at source via a PAYE code or file a Self Assessment return.
Annuities and Drawdown Income
Income from annuities is also treated as pension income and taxed accordingly. Drawdown pensions, where you withdraw money as needed from your pension pot, are subject to UK income tax. Non-residents are taxed only on the income withdrawn, not the entire fund value.
If the pension is a qualifying overseas pension scheme (QROPS), different tax rules may apply. Transfers to QROPS are subject to UK tax charges unless you meet conditions for exemption, such as residing in the same country as the QROPS.
Dividends and Interest Income
As a non-resident, you may still receive income from UK-based investments. Dividends and interest are subject to specific tax rules.
UK Dividends
From the 2024–25 tax year:
- The dividend allowance is £500
- Any dividend income above this threshold is taxed at 8.75 percent (basic rate), 33.75 percent (higher rate), or 39.35 percent (additional rate)
However, most non-residents are not liable to UK tax on dividends if the income is not connected to a UK trade and there is no permanent establishment.
Whether dividends are taxable in the UK depends on the double taxation agreement with your country of residence. In many cases, dividend income is only taxed in the country where you live.
UK Bank Interest
Interest earned from UK bank accounts is generally not taxed at source, and non-residents are typically exempt from UK tax on bank interest.
You may need to complete Form R105 to request gross payment (without deduction of tax) from UK banks. However, the interest may still be taxable in your country of residence. If UK tax is withheld and a treaty allows exemption, you can reclaim the tax using Form R43.
Other Income: Royalties and Trusts
Income from UK sources like royalties, trusts, and partnership profits may also be subject to UK tax, depending on where the activity takes place and the residence of the recipient.
Royalties from intellectual property exploited in the UK are generally taxed at the basic rate unless a double taxation treaty specifies otherwise. Trust income is taxed in the UK depending on the trust’s residence and distribution type. It is crucial to identify whether income is UK-source and how the treaty between the UK and your country of residence allocates taxing rights.
Inheritance Tax Implications
UK inheritance tax (IHT) applies based on domicile, not residency. This means that non-residents can still be subject to IHT if they are deemed domiciled in the UK.
A person is considered UK-domiciled for tax purposes if:
- They were born in the UK and had a UK domicile of origin
- They have been UK tax resident in 15 of the past 20 years
- They have a UK domicile under common law
UK IHT applies at 40 percent on estates over the nil-rate band of £325,000. Assets situated in the UK, such as property or bank accounts, are subject to IHT even for non-residents.
To mitigate exposure, individuals can consider estate planning strategies such as:
- Using spousal exemptions
- Establishing offshore trusts
- Gifting assets during their lifetime
Careful planning is essential, particularly for non-residents with UK-based assets who may not realise the full extent of their IHT liability.
Double Taxation Agreements
Double taxation agreements (DTAs) are vital in determining whether income is taxed in the UK, your country of residence, or both.
DTAs can:
- Eliminate double taxation on the same income
- Determine taxing rights for pensions, property income, dividends, and interest
- Allow relief for tax paid in one country against liability in the other
Claiming treaty benefits often requires completing specific forms and may involve submitting proof of tax residency abroad. If your country has no treaty with the UK, you may face withholding taxes or be unable to claim the personal allowance.
Compliance and Notifications
Non-residents must keep HMRC informed of their status. If your residency changes, or if you have UK income, you must notify HMRC. This can be done by:
- Completing the relevant pages in your Self Assessment tax return
- Filing a P85 when you leave the UK
- Applying for relief under a DTA if relevant
HMRC has increased scrutiny of international tax compliance, so accurate reporting and record-keeping are critical. Penalties for errors, omissions, or failure to report can be substantial.
Conclusion
Navigating UK tax obligations as a non-resident can be complex, but with proper knowledge and careful planning, it is entirely manageable. Whether you’re renting out property in the UK, selling a former residence, receiving a pension, or earning interest or dividends from UK sources, understanding the rules ensures you stay compliant and avoid unnecessary penalties. Residency status is the foundation of your tax position. It determines whether you’re taxed on worldwide income or just UK-sourced income, and HMRC’s statutory residence test is a vital tool for confirming your classification each year.
Rental income remains a common source of UK income for expats and requires timely reporting under the Self Assessment regime. Understanding the Non-Resident Landlord Scheme, available allowances, and allowable deductions can help reduce your tax liability legally and efficiently. Capital gains tax now applies to most UK property and certain shares, even for non-residents. Knowing how to calculate gains, use reliefs, and meet reporting deadlines is key to avoiding fines and overpaying tax.
Pension income, interest, and dividends each come with their own set of rules. Double taxation agreements can make a significant difference in how and where your income is taxed, offering opportunities for relief when handled correctly. Inheritance tax may still apply to your estate if you remain domiciled in the UK, regardless of how long you’ve lived abroad. Estate planning strategies can help protect your legacy and minimise exposure to UK tax.
Across all income types, the message is clear: keep detailed records, stay informed of changing tax laws, and proactively declare your non-resident status to HMRC. Use any applicable tax treaties to your advantage and consider professional tax advice for more complex situations, particularly where multiple countries are involved. By being proactive and informed, you can ensure tax efficiency while staying fully compliant with UK law—whether you’re enjoying retirement abroad, investing in UK property, or maintaining financial ties to your home country from overseas.