If you live abroad but rent out a property in the uk what taxes do you pay?

Question

My friend's parents live abroad and they own a two bedroom flat in the uk which they rent out. My friend wanted to move into the flat with me and pay them rent. However her parents told her we can't because it would cost them more in taxes.

Is this correct because it seems strange to me. But I don't know anything about taxes! We are both full time students so I thought this made us exempt from council tax? We are both British citizens as are her parents, if that is relevent.

There are people currently living in the flat that aren't related or students..... So what is the extra tax?

Answer 1

It can't cost them more Council tax, because any that's due is payable by the people occupying the property.  Sure it would cost them more in income tax, but that is because they would be getting more in rent, and would be only 20% of what you would pay them (and which you would have to withhold and pay to HMRC, unless they can give you an HMRC certificate to say that you needn't). They might even finally have to pay 40% of it as extra tax, if their income is high enough to get into that tax band.  All the same, they'd still get to keep for themselves 80% (or 60%) of the extra rent!

Answer 2

It's nothing to do with Council Tax, but Income Tax on a nonresident landlord (your friend's parents). It would depend on their residency status, where they are currently living, and any double taxation treaty there is in the country in which they are living. Sometimes foreign residents don't get any personal tax allowance, so they have to pay tax on all UK income (like rental income). If they are still being taxed in the UK, the rental income may push them into the higher rate bracket. We don't know enough about their circumstances to be specific. Are you sure that they just don't want to rent the property to you and your friend?

Are the people currently in the flat on a fixed-term lease? Maybe your friend's parents do not wish to give notice to quit to the tenants.

You could look at www.hmrc.gov.uk/nonresidents.