Left the UK, Kept the Properties: How an Unadvised Departure Cost One Landlord Thousands a Year

The Background

David is a British national in his mid-forties who relocated to Dubai in early 2024 to take up a senior management role with a multinational employer. The move was planned primarily around the employment opportunity; the tax implications of leaving the UK were not reviewed before he departed.

Before leaving, David owned three UK residential properties that he had accumulated over the previous decade. All three were held in his personal name and let to tenants.

He also held a UK equity portfolio generating dividend income, which he had built up over the years through a general investment account. He had no intention of selling either the properties or the portfolio. Both were long-term holdings and he planned to continue receiving the rental income and dividends while living abroad.

David had filed UK Self-Assessment returns each year since the properties were first let, always with the same local accountant who had handled his affairs throughout. Following his departure, he continued to use the same accountant, who was not a specialist in non-resident taxation and continued to prepare his returns broadly as before. Two years after leaving the UK, David contacted ASWATAX after a conversation with a colleague who had received specialist non-resident tax advice and suspected his own position might not be as well managed as it could be.

What We Found

A review of David's UK tax position identified three separate problems, each of which was costing him money.

Problem One: The Non-Resident Landlord Scheme

UK rental income paid to a non-resident landlord is subject to the Non-Resident Landlord Scheme (NRLS). Under the NRLS, letting agents or tenants paying rent directly to a non-resident landlord are required to deduct basic rate income tax at source which is currently 20% of the gross rent and pay that over to HMRC each quarter. The landlord then receives the net rent.

However, a non-resident landlord can apply to HMRC to receive rents gross without deduction at source by registering under the NRLS approval process. To obtain approval, the landlord must confirm that their UK tax affairs are up to date and that they will continue to comply with their UK tax obligations. Once approved, HMRC notifies the letting agent or tenant and rent is paid in full.

David's letting agents had been correctly deducting 20% from his gross rents and paying it to HMRC. But because nobody had applied for NRLS approval on his behalf, he had been receiving only 80% of his rental income for two years. The deducted tax should have been credited against his Self-Assessment liability but because his returns had not been prepared correctly to claim that credit, the deducted tax was effectively sitting with HMRC unclaimed. We applied for NRLS approval immediately, restoring his cash position going forward, and amended his prior year returns to reclaim the overpaid tax.

Please note that NRLS approval does not reduce the tax David owes; it simply changes when and how he pays it. The tax liability on his rental profit is the same either way. But failing to claim the credit for tax already withheld meant he had been overpaying his Self Assessment bill each year and had not recovered the excess.

Problem Two: The Section 399 Notional Dividend Credit

David's UK tax position involved two categories of UK-source income: rental income from his three properties, and dividends from his UK equity portfolio.

Non-residents in this position with both UK rental income and UK dividend income are entitled to calculate their UK tax liability using whichever of two alternatives produces the lower charge. Under Alternative 1, all UK income is brought into assessment, they may claim their Personal Allowance and a notional tax credit under section 399 ITTOIA 2005 is applied to the dividend income at the ordinary dividend rate of 8.75%. Under Alternative 2, only the rental income is assessed, but without any personal allowance.

David's previous accountant had been preparing his returns without considering which method was most beneficial to the client. In David’s case, by applying the second alternative produced a lower liability. By disregarding the dividend income and the use of dividend credit was sufficient to reduce the taxable income when compared to the alternative, producing a lower overall UK tax position on both overall income combined. His prior year returns were amended accordingly.

This relief is time-limited. As covered in our recent blog on the abolition of the notional dividend tax credit, section 399 will be repealed with effect from 6 April 2026. From that date, the notional tax credit will no longer be available and David's UK tax position will need to be recalculated. We have modelled his projected position post-April 2026 and advised on the most efficient approach going forward.

Problem Three: No Forward Planning

Beyond the immediate filing errors, the review identified a broader absence of forward planning around David's UK position. He had no awareness of the temporary non-residence rules and had not been advised that gains realised on UK assets during his period of non-residence could be brought back into charge if he returns to the UK within five complete tax years. He had no particular intention to sell the properties in the near term, but had he done so without understanding the TNR rules, the proceeds could have been entirely unexpected in their UK tax treatment.

He was also unaware that from 6 April 2026 his UK tax cost on the rental and dividend income would increase, and had made no plans to review whether retaining the equity portfolio directly rather than through a more tax-efficient structure remained the right approach once the section 399 credit is removed.

The Outcome

The immediate result of the review was a reclaim of overpaid tax across the two prior years in which David's returns had been incorrectly prepared, combined with NRLS approval to restore his cash flow on the rental income going forward. On a prospective basis, the correct application of the Alternative 1 calculation while section 399 remains in force reduced his annual UK tax liability to nil on both income streams.

We also put in place a forward plan addressing the April 2026 changes, the TNR position on the properties and portfolio, and the longer-term question of whether the equity portfolio is best held directly or restructured. David now has a clear picture of his UK tax obligations as a non-resident and the actions required as the rules change.

The Takeaway

Leaving the UK does not end your UK tax obligations, it changes them. The Non-Resident Landlord Scheme, the two-alternative calculation for non-residents with mixed UK income, the temporary non-residence rules, and the upcoming abolition of the section 399 credit are all features of UK non-resident taxation that a general practice accountant without specialist experience in this area is unlikely to be across. For UK nationals living abroad with UK property and investment income, a dedicated review of the non-resident position is not an optional extra; it is the starting point for getting the annual compliance right and ensuring that the planning is in place before the rules change.

Please contact ASWATAX for further advice on any areas of international tax at taxadvisory@aswatax.co.uk