If you have been living outside the UK for more than six months in any tax year and earn rental income in the UK, you must register with HMRC, even if you are a UK citizen.
Did you know that you are classed as a non-resident landlord if you live outside the UK but let a property here and must register with HMRC? If you do not, either your letting agent or tenants must withhold 20% of the rent and pay this to HMRC.
If you rent out property in the UK but live abroad for more than six months a year, our guide to the Non-Resident Landlord Scheme (NRLS) will help you understand your tax liabilities.
What is the Non-Resident Landlord Scheme?
Under international law, the UK government have the first right to tax income from UK real estate, even if this income is subject to tax in another country. Because it is difficult for HMRC to track down landlords who live abroad they seek to collect the tax before it is paid. HMRC do this via the Non-Resident Landlord Scheme. Under the scheme, letting agents are legally obliged to withhold tax before paying rent to the landlord. If there is no letting agent, this obligation falls on the tenants.
Am I a non-resident landlord?
If you receive income from renting out property in the UK and spend more than six months in every tax year living outside abroad, you are classed as a non-resident landlord.
We come across many overseas landlords who believe that because they are declaring their rental income from UK property in the country where they are a tax-resident, they do not need to pay UK income tax. This is not the case.
What you need to do as a non-resident landlord
Non-resident landlords can register to receive their rental income gross by completing form NRL1. This does not mean that the income is tax-exempt, but that the landlord has agreed to settle the tax bill themselves.
Individuals receiving income from UK property also have a separate obligation to file a UK Self-Assessment Tax Return. If your letting agent or tenant have deducted tax from your rental income under the Non-Resident Landlord Scheme, this will be detailed in your tax return and offset against your tax liability.
If you are taxed on your UK property income in a foreign country, you may end up paying tax in two countries for the same income. You will need to claim a credit in the country where you lived against the tax paid in the UK.
What you need to do as a tenant of a non-resident landlord
If you pay over £100 per week in rent directly to a landlord who lives abroad, you must register with HMRC for the Non-Resident Landlord Scheme. You should also register if you pay the rent to a landlord's UK-based representative who is not a letting agent.
HMRC will tell you whether you need to deduct tax from your rent. If you are required to withhold tax, you must do so at a rate of 20%. The tax is payable to HMRC quarterly at the end of June, September, December and March. You must provide your landlord with a certificate of tax liability on form NRL6 each year (by 5th July).
Even if you don't need to deduct tax, you may still need to complete an annual report for HMRC (by 5th July).
What you need to do as a letting agent of a non-resident landlord
All letting agents who collect rent for non-resident landlords should be registered with HMRC for the Non-Resident Landlord Scheme.
Letting agents must withhold tax on all rents collected for a non-resident landlord (there is no £100 threshold) unless HMRC has said the landlord can receive their gross rent.
We can help
The non-resident landlord scheme can seem confusing. If you feel that you require further clarification, we are always here to help. Our property experts make sure they stay up-to-date with the law and tax regulations and can guide you through the process and ensure that you fulfil your tax liabilities in the UK. Contact us today.