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 if you live outside the UK, but let a property here, you are classed as a non-resident landlord and must register with HMRC?
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, even if you are a UK citizen.
Joining the non-resident landlord (NRL) scheme is not optional and failure to pay your tax could land you with a significant fine. So it’s essential that you understand your tax liabilities and how the money will be collected - read on for a guide to everything you need to know about the NRL scheme.
What is a Non-Resident Landlord?
Property investors are considered non-resident landlords if they spend more than six months living outside the UK, in any tax year. The place where you live during your time away from the UK does not have to be your permanent home for you to be considered a non-resident landlord. The statutory residence test, and other tax definitions of residence, do not apply to non-resident landlords.
Non-resident landlords include companies which let properties in the UK but have a registered office overseas. Crown servants, including diplomats and members of the armed forced posted overseas, are also considered non-resident landlords. You cannot claim that the UK is your usual home on the basis of having a PO Box or forwarding address.
To understand the NRL scheme, it is important to remember that if you live overseas but receive income from letting out a property in the UK, this income is generally taxable in the UK, like any other UK-sourced income. However, it is difficult for HMRC to ensure that individuals who live outside the UK are compliant with their UK tax obligations. So they seek to collect the tax on the rental income before it is paid to the overseas landlord. HRMC do this via the NRL scheme which makes UK letting agents or tenants responsible for withholding tax on rental income.
Non-Resident Landlord Scheme Guidance
Tenants, letting agents or anyone finding tenants for non-resident landlords are usually responsible for deducting basic rate tax from any rental payments.
Tenants who pay less than £100 a week directly to a non-resident landlord do not have to withhold tax. They must, however, make an annual return to HMRC declaring the rent they have paid.
Letting agents must withhold tax on all rents collected for a non-resident landlord; there is no £100 threshold. They must then make an annual return to HMRC declaring the rents they have collected on behalf of the landlord. Be aware that a friend or relative collecting rental payments for you will be considered a letting agent.
If you employ anyone to source tenants for your property, they do not have to withhold tax on any rental payments collected in advance from tenants as long as:
- The fees for sourcing the tenants are deducted from the rent collected
- The rent collected covers a period of no more than three months and the tax due on this is less than £100
Non-Resident Landlord Application
Letting agents and tenants should register with HMRC’s Non-Resident Landlord Scheme within 30 days of the start of a tenancy.
Letting agents complete and file an NRL4i form
Tenants should write to:
HM Revenue and Customs
Charities, Savings and International Operations S0708
PO Box 203
By July 5, both should send a rent report to HMRC on an NRLY form
and an NRL6 certificate
to the landlord.
Letting agents and tenants should keep records of rent paid, emails or letters to landlords about where they live and details of any expenses paid for the landlord. It’s essential to keep this paperwork for four years.
Non-Resident Landlord Tax Payments
Letting agents and tenants must send payment within 30 days of the end of each tax quarter - 30 June, 30 September, 31 December and 31 March.
Working out the tax you need to pay
The basic rate of tax is payable on the total rent in the 3 month tax quarter, less any allowable expenses paid for the landlord, such as repairs.
Letting agents and tenants have the right to recover this money from rent payments or other money owed to the landlord.
John pays his landlord £400 per week rent between April and June, during that time he also pays £200 in plumbing repairs for his landlord.
- His rent was £400 x 12 weeks = £4,800
- Allowable expenses = £200
- Taxable amount is £4,800 – £200 = £4,600
- Tax due is £4,600 x 20% = £920
If you are the joint owner of a property, your taxable income will be assessed according to the share of the property you own.
Non-Resident Landlord Tax Return
As a non-resident landlord, you will not have a special tax return to complete. You should simply declare your rental income and expenses on the UK property pages (SA105) of the self-assessment return. Companies should complete and file a corporation tax return (CT600).
HMRC Non-Resident Landlord Tax Form (NRL1)
If you wish to receive your rental payments before tax (gross), you should complete form NRL1
and submit this to the HMRC Centre for Non-Residents. HMRC may grant approval and will notify your tenants or letting agent. Your profits will remain taxable but receiving gross payments may improve your cashflow.
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