Are you moving to Denmark and renting out your UK property? If so, you will be classified as a ‘non-resident landlord’ by HM Revenue and Customs (HMRC).
Below we have covered some of the popular UK and Danish tax issues and questions that arise when becoming a non-resident landlord in Denmark.
How do I stop my estate agent or tenant from deducting UK tax at source?
If you have been determined as a non-resident landlord of the UK, your letting agent or tenant will deduct basic rate tax (20%) from your rent. Once the tax year is complete, your estate agent or tenant will provide you with a certificate certifying how much tax they have deducted in the relevant tax year.
As a landlord, cash flow is important, therefore it’s likely you would prefer to receive your rent in full and pay any tax due through your UK self-assessment tax return.
The way in which you can receive your rent in full, prior to any taxation, is to file a non-resident landlord form (NRL1). Once the form has been approved, HMRC will inform your letting agent or tenant to stop deducting tax from your rent. From there on, you will receive your rent in full without UK taxation. Any tax deducted earlier in the year will be refunded on your next rental statement.
However, it is worth noting that HMRC will only approve your NRL1 application if your taxes are up to date. For example, you have no outstanding tax or tax returns due.
What expenses can I claim on my UK property income?
If this is your first experience of being a landlord, you may be unsure about what expenses are tax deductible. HMRC iterate that for an expense to be allowable for tax purposes, it should be incurred wholly and exclusively as a result of renting out your property. Typical expenses include buildings insurance, estate agent fees and utility bills (only if not reimbursed by tenants).
In some instances, what you assume are revenue expenses may in fact be ‘capital expenses’ for example, improving or upgrading something that was existing. Capital expenses are not allowable and cannot be claimed against rental income, however you might be able to set them against capital gains tax if you sell the property in the future. You should seek professional advice if you’re unsure on the tax treatment of your property expense.
Since April 2020, you have no longer been able to deduct any mortgage expenses from taxable rental income. Instead, mortgage interest is used as a tax reducer, where you receive a tax credit based on 20% of mortgage interest payments. For example, if you make mortgage interest payments of £5,000 per year, you will receive a tax credit of £1,000 to deduct from the liability incurred on your property income.
Will I be taxed on my UK rental income in Denmark?
If you’re classified as a tax resident in Denmark, you will need to declare your worldwide income to skat (HMRC equivalent in Denmark). Therefore, as long as you are resident of Denmark, you will need to declare your UK rental income on your Danish tax return.
Where you have paid tax in the UK on your UK property income, you may be entitled to a Danish foreign income tax offset. As the Danish tax year runs from 1 January to 31 December, the UK property income/expenses along with any UK tax paid will need to be proportioned appropriately.
In situations where you own a property, but do not receive rental income, or in instances where rental income is below market rates, a tax on the property will apply, no matter where it is located.
Where a ‘Danish resident’ has property in the UK, the Denmark-UK double tax treaty becomes relevant.
Will I receive my UK personal allowance as resident of Denmark?
When non-resident of the UK, it’s only in certain circumstances that you will get a personal allowance of tax free UK income each year. These include the following:
- you hold a British passport
- you’re a citizen of a European Economic Area (EEA) country, or
- you’ve worked for the UK government at any time during that tax year.
As Denmark is a country in the European Economic Union, it’s likely you will be entitled to your UK personal allowance. Thus, only the rental income over the UK personal allowance will be taxable in the UK.
How do I file my UK self-assessment tax return from Denmark?
Regardless of whether you’re a resident of Denmark, renting out a UK property automatically enters you into the UK self-assessment regime. The return will be used to calculate any tax liability arising from your UK property income and any additional UK taxable income.
The same Tax Return deadlines apply to non-residents as they do to UK residents – 31st January following the tax year end (31st October for paper returns). Automatic late filing penalties will apply after the deadlines have passed.
As a non-resident you are unable to use HMRC’s online services to file your return. Instead, you need to:
- Send your tax return by post
- Use commercial software
- Get help from a professional
If you need advice or assistance with your UK or Danish tax obligations, we are here to help. Simply send us an email at the address below to arrange a free initial consultation.
Denmark: John Munch, Tax Manager, Sheltons Accountants (Copenhagen), J.Munch@SheltonsGroup.com
United Kingdom: Ned Shelton, Director, Sheltons Accountants UK (London), N.Shelton@SheltonsGroup.com