Taxes for Overseas Owners of London Property: Rental Income, Capital Gains and Inheritance Tax
Owning a London flat from abroad brings three UK taxes with it, whatever your nationality or where you live. Rent is subject to UK income tax, collected through the Non-Resident Landlord Scheme, under which a letting agent normally deducts 20% basic-rate tax before paying you. A gain on sale is subject to UK capital gains tax at 18% or 24%, and you must tell HMRC about the sale within 60 days of completion even if no tax is due. And the flat falls within UK inheritance tax at 40% above the £325,000 nil-rate band, because UK assets are always within its reach.
Two changes are already fixed in law. From 6 April 2027, property income in England will be taxed at its own rates of 22%, 42% and 47%, two points above today’s rates, and the withholding under the Non-Resident Landlord Scheme will move to 22%. And since 6 April 2025, inheritance tax has followed long-term residence rather than domicile.
All figures here are as of October 2026, before the Autumn Budget on 28 October 2026. Measures that have been announced but are not yet law, such as the High Value Council Tax Surcharge, are labelled as proposals. This is a map of the rules, not tax advice: your own position depends on your residence, your home country’s tax treaty with the UK and how you hold the flat.
Tax on rent: the Non-Resident Landlord Scheme
For UK tax purposes you are a non-resident landlord if your usual place of abode is outside the UK, which generally means you are abroad for more than six months a year. The scheme puts the collection duty on the people paying you. A letting agent must deduct basic-rate income tax, currently 20%, from the rent after allowable expenses and pay it to HMRC every quarter. If there is no agent, a tenant paying more than £100 a week must make the deduction instead.
You can apply to HMRC, on form NRL1 for individuals, to receive the rent without deduction. This is not an exemption. If HMRC approves, you file a UK Self Assessment return each year and pay whatever tax is due through it. For many owners gross payment simply moves the timing of the tax and puts the paperwork in their own hands.
Whether a non-resident individual is entitled to the UK personal allowance, the tax-free slice of income, depends on nationality and treaty status. Ask your adviser to confirm your position before you budget for the net rent.
Income tax rates on rent, now and from April 2027
Property income is currently taxed at the normal income tax rates: 20% basic, 40% higher and 45% additional. From 6 April 2027, the start of the 2027 to 2028 tax year, individuals in England, Wales and Northern Ireland will pay separate property income rates of 22%, 42% and 47%. Relief for residential finance costs, such as mortgage interest, will be given at 22%. These rates are set by section 7 of the Finance Act 2026, enacted in March 2026.
The change applies to non-resident landlords too, and the withholding rate under the scheme will move to the new property basic rate of 22%. Until 6 April 2027 the current rates apply.
Letting itself has its own rules, from deposit protection to borough licensing, which we cover in renting out a London flat in 2026.
Selling: capital gains tax for non-residents
Non-UK residents pay UK capital gains tax on disposals of UK residential property, and since 6 April 2019 on all UK land and property, including some indirect disposals through property-rich companies. For individuals in the 2026 to 2027 tax year, the rates are 18% on gains that fall within the basic-rate band and 24% above it, with an annual exempt amount of £3,000. Trustees pay 24%.
The reporting rule catches many overseas sellers. A non-resident must report the sale to HMRC, and pay any tax, within 60 days of completion. This applies even where there is no tax to pay or the sale makes a loss. The return goes through HMRC’s separate “Capital Gains Tax on UK property” account. If you sell, make sure your solicitor or accountant has the 60-day date in the diary from the day of completion.
Older purchases have special rules: non-residents can generally use the market value at 5 April 2015 as the base cost for residential property bought before then. For a new-build flat bought today, the starting point is the price you pay.
Inheritance tax: a London flat is always in scope
Inheritance tax is charged at 40% on the part of an estate above the £325,000 nil-rate band. The nil-rate band and the £175,000 residence nil-rate band are frozen until 5 April 2031, after the Autumn Budget 2025 extended the freeze by a year. The residence band applies only where a home is left to direct descendants.
Since 6 April 2025, the scope of the tax depends on long-term UK residence rather than domicile. You are long-term UK resident if you have been UK resident in at least 10 of the previous 20 tax years. A person who is not long-term resident is liable only on UK assets. A London flat is a UK asset, so it is within UK inheritance tax at death, and on some lifetime gifts, whoever owns it and wherever they live.
Two refinements matter for people with UK history. Under a transitional rule, someone who was not UK domiciled on 30 October 2024 and is not UK resident in 2025 to 2026 or later is long-term resident only if they were UK resident in 15 of the previous 20 years and in at least one of the three previous years. And long-term residents who leave the UK keep worldwide exposure for a “tail” of three to ten years.
Holding through a company or trust
A company or trust does not take a London home out of inheritance tax. Since 6 April 2017, interests in close companies, partnerships and loans that are attributable to UK residential property have no longer been excluded property. A company structure does, however, bring its own costs.
The Annual Tax on Enveloped Dwellings applies to UK residential property worth more than £500,000 owned wholly or partly by a company, by a partnership with a company member, or by a collective investment scheme. The return and payment are due by 30 April for the year starting 1 April. Reliefs, such as property rental business relief, must be claimed on a return or relief declaration; they are not automatic. April 2027 is a revaluation date.
| Property value | ATED 1 April 2026 to 31 March 2027 | ATED 2025 to 2026 |
|---|---|---|
| £500,001 to £1 million | £4,600 | £4,450 |
| £1 million to £2 million | £9,450 | £9,150 |
| £2 million to £5 million | £32,200 | £31,050 |
| £5 million to £10 million | £75,450 | £72,700 |
| £10 million to £20 million | £151,450 | £145,950 |
| Over £20 million | £303,450 | £292,350 |
Add the 17% Stamp Duty rate for companies buying a dwelling over £500,000, plus 2% for non-residents, and for an individual buying one flat a company usually costs more and saves no inheritance tax. Our Stamp Duty guide has the numbers.
The taxes at a glance
| Tax | When it applies | Rate as of October 2026 | What to watch |
|---|---|---|---|
| Income tax on rent | Every tax year the flat is let | 20% / 40% / 45%; 22% / 42% / 47% from 6 April 2027 (legislated) | NRL withholding by agent or tenant; NRL1 for gross payment |
| Capital gains tax | On sale | 18% / 24% for individuals; £3,000 annual exempt amount | Report and pay within 60 days of completion, even with no tax due |
| Inheritance tax | On death and some lifetime gifts | 40% above £325,000 | UK assets always in scope; companies and trusts do not shelter UK homes |
| ATED | Each year a company owns a home over £500,000 | £4,600 to £303,450 a year | Return by 30 April; reliefs must be claimed |
| Stamp Duty Land Tax | On purchase | Standard bands plus 5% and 2% for most overseas buyers | Rates at completion apply |
Time in the UK, the Budget and the changes ahead
Tax residence is separate from immigration status. Spending time in the UK can make you UK resident for tax under the statutory residence test, and that changes several of the answers above: it affects the refund of the 2% Stamp Duty surcharge, your capital gains tax position and, over a longer period, your inheritance tax exposure. Owning a flat gives no right to live in the UK in any case. If you expect to spend long periods in London, take advice before you do.
Several measures are announced but not yet law:
- The High Value Council Tax Surcharge, announced at the Autumn Budget on 26 November 2025, would be an annual charge on the owner of a home in England worth £2 million or more, from April 2028, in bands from £2,500 to £7,500 a year. The consultation closed on 14 July 2026 and also explored an extra premium for non-resident owners, without detail. The government has not yet responded, and the surcharge needs legislation before it applies.
- The Autumn Budget on 28 October 2026 may bring further changes. No immediate Stamp Duty or council tax changes were expected beforehand, but nothing is settled until Budget day.
The 2027 property income rates are different: they are already in the Finance Act 2026, but they do not apply until 6 April 2027.
What to check with your tax adviser
- Whether you are a non-resident landlord, and whether to apply on form NRL1 to receive rent gross.
- Whether you are entitled to the UK personal allowance, and what your home country’s treaty with the UK says about rental income and gains.
- How the 22% property rates from April 2027 change your expected net rent, especially if you borrow.
- Who will file the 60-day capital gains return when you sell.
- Your long-term residence status for inheritance tax, and whether your will covers the London flat.
- Whether owning in your own name or through a structure makes sense once ATED and inheritance tax are included.
- What, if anything, the Budget of 28 October 2026 changed.
Running costs, including council tax and service charges, are in our running costs guide. The London homes we work with are on our properties page.
