Navigating the tax implications of owning UK property as an expatriate in Pacific Asia

Income Tax on rental income 

If you are letting out UK property, you are liable to UK tax on your rental income regardless of your residence status in the UK.  

Taking the 2025/26 UK tax year as an example, rental income after deducting allowable expenses is chargeable to UK tax at the taxpayer’s marginal income tax rate. This ranges from a basic rate tax of 20% on your first £37,700 of taxable income to an additional rate of 45% for taxable income over £125,140. 

UK taxpayers and certain non-residents may be eligible to claim a tax-free personal allowance for a UK tax year against their taxable income. The personal allowance is currently £12,570 and this is frozen until April 2028. For example, non-resident taxpayers may be eligible to claim a personal allowance under the terms of a double taxation agreement or based on their nationality if they are a British citizen or a national of a European Economic Area member state. 

Taxpayers can deduct expenses that are exclusively incurred for their rental business in arriving at their taxable rental profit. A few examples of allowable expenses are listed below:  

• Letting agent fees and management fees 
• Insurance 
• General maintenance and repairs to the property (but not generally for improvements that are usually regarded as capital expenditure) 
• Finance costs such as mortgage interest (although tax relief is now limited to basic rate tax credits only at 20%). 

You are required to declare your rental income annually on your UK Self-assessment tax return and pay any required taxes to HMRC by 31 January following the end of a UK tax year. 

Capital Gains Tax on property disposal 

Capital gains realised when selling a UK property are subject to UK Capital Gains Tax (CGT). Again, this comes regardless of your residence status for UK tax purposes and applies to expatriates residing abroad who sell property in the UK.  

Any capital gains on residential property will be chargeable to UK CGT at either 18% or 24% (from 30 October 2024) depending on other UK income sources you have during the tax year. You can offset the UK taxable gain with your available CGT annual exemption, which is £3,000 per taxpayer for the 2025/26 UK tax year.  

If you’ve ever lived in a property as your main home during your ownership, you may be eligible to exclude part of the chargeable gain using ‘Principal Private Residence (PPR) relief’. 

The disposal must be reported and any CGT due must be paid to HMRC within 60 days of completion via your online ‘Capital Gains Tax on UK Property’ account. It’s not possible to delay paying the CGT until filing a Self-Assessment tax return for the tax year, so it’s important to factor this into your cash flow planning. 

If you are required to file a UK Self-Assessment return for the year, you will need to report the gains and any CGT already paid on the tax return, even if the transaction has already been reported through your online account. 

Inheritance Tax considerations 

Inheritance Tax (IHT) is a UK tax on the estate of someone who has died. Your UK IHT exposure depends on your UK domicile status. 

All UK- assets (including UK residential property) will be chargeable to UK IHT, regardless of your domicile and residence status in the UK. This remains the same even after the introduction of the new residence-based system, which will take effect from 6 April 2025.  

UK IHT is calculated based on the market value of your estate at the time of death at a standard rate of 40% on a value exceeding the £325,000 Nil Rate Band (NRB). If the property is passed to a direct descendant, an additional £175,000 Residence Nil Rate Band (RNRB) may apply if the property has been the main residence for the deceased, but this is subject to tapering if your total estate exceeds £2 million. If your estate, including the property, is valued under the NRB (and the RNRB if eligible), you will not owe any UK IHT.  

There are ways to manage your UK IHT exposure if the value of your estate subject to UK IHT is above the NRB. You may wish to consider planning opportunities such as utilising the spousal transfer exemption (depending on your domicile status) and unused NRB inherited from your deceased spouse or gifting the property to your loved ones.  

In the recent UK Budget in October 2024, the Labour government announced the abolition of the domicile regime, to take effect from April 2025. This will be replaced with a residence-based regime. Individuals who have been resident in the UK for at least 10 out of the last 20 tax years immediately preceding the tax year in which an IHT chargeable event (including death) arises, should be mindful of the changes as their worldwide estate (not just UK based assets) may be caught by UK IHT and the ’10-year tail’ – something which can have significant implications on an individual’s overall IHT position. 

It's therefore advisable to review your inheritance tax planning strategies to ensure that the impact of the new residence-based regime has been taken into consideration.  

Our specialist UK tax advice can help you understand your UK IHT exposure and can support you with your tax planning strategies to minimise your UK tax exposure wherever possible. 

Residence and domicile impact

In the UK, your residence status for tax purposes is determined by the UK domestic rules, the Statutory Residence Test, which is a three-step test looking at the number of days you spend in the UK and your connecting factors to the UK during the tax year. This is separate from your domicile status in the UK. 

Your income and gains arising from a source that is situated in the UK (such as income from your UK property) are always chargeable to UK tax, regardless of your residence or domicile status in the UK. Your UK tax residence can also impact your UK reporting obligations when owning a property in the UK. We have listed below some of the additional considerations relevant to someone who is non-UK resident:   

• If you live abroad for six months or more per year, you are considered a ‘non-resident landlord’ by HMRC. Your tenant or your letting agent is required to deduct basic rate UK tax from your income unless they have authority from HMRC to make gross payments to you. A Form NRL1 can be filed with HMRC to certify that you will complete all necessary tax return documentation and pay any taxes where due, so you can obtain clearance from HMRC that no tax withholding at source is required. 
• Individuals who are not residents in the UK for the tax year of disposal are subject to ‘Non-Resident CGT’ (NRCGT). The disposal must still be reported to HMRC within 60 days of completion, even if you have no tax to pay or have made a loss. This is a special requirement for non-residents as the rule is different for UK tax residents. 
• If you owned a UK residential property before 6 April 2015, there are different ways you can calculate your NRCGT when compared to the CGT. The three methods available to you are:
  • the straight-line apportionment method,
  • the gains over the whole period of ownership, or
  • the rebasing method.

You can use the method that yields the best tax result for you, but broadly a UK non-resident is only subject to NRCGT on the part of the gain accrued from 6 April 2015.

If you’re not domiciled or resident in the UK, you’re still subject to UK IHT but your exposure is limited to your UK estate above the NRB (meaning UK-based assets only and not your entire worldwide estate). This is provided you’re not caught by the new residence-based regime. 

Double taxation agreements 

The UK has an extensive network of Double Taxation Agreements (DTAs) with different jurisdictions, and many are in the Pacific Asia region (such as China, Singapore, and Japan). The purpose of a tax treaty is to mitigate double taxation and allocate taxing rights between the treaty countries to tax certain income or to exempt it. This is especially important if you’re living outside the UK, as your UK income or gains may be subject to tax in the UK as well as your home country. 

Generally, these treaties specify that rental income is taxed in the country where the property is located, and the same applies to the gains from the disposal of property. If a taxpayer has rental income from a UK rental property or a gain from the disposal of a UK property, the UK should have primary taxing rights under the relevant treaty. The other treaty country will generally allow a foreign tax credit for the tax paid to the UK as a form of double tax relief, meaning that the same income or gain is not taxed twice. This relief is limited to the lower of any UK taxes suffered or the amount of foreign tax payable on the same income or gain. 

Although most tax treaties are broadly similar, it’s important to remember that they are all negotiated and written individually. Always seek advice about the treaty between the UK and the treaty country in question.  

As these details show, owning UK property as an expatriate in the Pacific Asia region involves navigating various tax implications. Whether you’re planning to purchase or dispose of a UK property, or you need help with income tax or Inheritance Tax planning, our experienced tax professionals at Buzzacott can help you navigate the complexities of the UK tax system.

Conclusion

In summary, owning UK property as an expatriate in the Pacific Asia region can give rise to various tax implications. From Income Tax on rental income to Inheritance Tax exposure on a UK property, expats must be aware of their tax obligations. Seeking professional advice tailored to individual circumstances is paramount for managing tax liabilities effectively.