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 you are classed as a non-resident landlord if you live outside the UK but let a property here and must register under the NRLS? If you do not, 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 rent paid for property in the UK and spend more than six months in every tax year living abroad, you are classed as a non-resident landlord for tax purposes.
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, and they must meet their UK tax obligations and pay the amount of tax due to HMRC.
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 are also obligated to file a UK Self-Assessment Tax Return, sometimes called an annual return.
If your letting agent or tenant has 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.
However, it is possible to register to receive your rental tax income gross under the NLRS if you meet one of the following criteria:
- Your tax affairs are up to date
- You have never had any UK tax obligations
- You do not expect to be liable to UK tax for the year in which the application is made (e.g. taxable income is within your UK personal allowance).
Do landlords get a personal tax allowance?
Yes, non-residential landlords who receive rent for a property are subject to UK income tax rules, which includes a personal allowance. For the tax year 2022/23, the standard personal allowance is £12,570. Also, the first £1,000 of rental income is tax-free.
How much tax do I pay as a non-resident landlord?
Non-residential landlords must pay the following tax rates when taxable income (after deducting allowable expenses paid) is over £12,570:
- 20% for rental income of £12,570 to £50,270
- 40% for rental income of £50,271 to £150,000
- 45% for rental income of £150,001 and above
Landlords who operate a limited company will be liable to pay corporation tax rather than the tax rates applicable under the personal allowance. The corporation tax for the tax year 2022/23 is 19%, but the corporation tax from 1 April 2023 is 25%.
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 live against the tax paid in the UK.
What you need to do as a tenant of a non-resident landlord
If you spend more than £100 a week in rent and pay 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 deducted 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).
How do I know that my landlord is a non-resident?
To be considered a non-resident landlord for tax purposes, the landlord will have a usual place of abode outside of the UK. Landlords who provide PO Box numbers and 'care of' addresses could live outside the UK. You should request more information from the landlord in this case, and if still in doubt, you can contact HMRC for further advice.
What if there is more than one landlord?
When there is more than one landlord, as the property is jointly owned, the £100 per week threshold applies to each landlord. If your weekly payment to each landlord is below £100, it is below the NRLS threshold. However, if you pay more than £100 to each landlord weekly, you must register with the NRLS and deduct the tax due to HMRC from the rent.
What if there is more than one tenant?
The £100 threshold applies to each tenant, so if their weekly rental payment is less than £100 each, this will fall below the NRLA threshold. However, if each tenant pays over £100 per week, they would need to separately register for NRLA and deduct the tax from their rental payment to pay the tax to HMRC.
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 require further clarification, we are always here to help. We can assist with working out deductible expenses, filing tax returns and any queries you have about your tax obligations for UK rental income as an overseas landlord.
Our property experts ensure they stay up-to-date with the law and tax regulations, can guide you through the process, and ensure that you fulfil your tax liabilities in the UK. Contact us today.