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A woman filing her rental income taxes from abroad. SAM Conveyancing answers: What is the non-resident landlord tax scheme?

What is the Non-Resident Landlord Tax Scheme?

18/06/2024
(Last Updated: 21/06/2024)
6
13 min read
Key Takeaways
  • If you are a landlord of UK property, you must file a UK self-assessment tax return, even if you are both resident and tax resident in another country.
  • If you are a landlord of UK property and live outside of the UK for 6 months or more of the tax year, you need to register with HMRC as a non-resident landlord.
  • For the purposes of the Non-Resident Landlord Scheme (NRLS), non-resident landlords include individuals, companies, trustees & partnerships.
  • A 20% withholding tax will be applied to your rental income by the tenant or the letting agent who receives the rent, which can be deducted from your annual tax return.
  • You may be able to register to receive your rent without the deductions applied, using form NRL1, 2, or 3.
  • The NRLS year runs from the 1st of April to the 31st of March, and each quarter ends on 30th June, 30th September, 31st December and 31st March. Annual returns are due by the 5th of July.


What is a resident landlord?

A resident landlord lives in the home they share with their tenant; for example, they may let out a room in their home. Non-resident landlords have rental income from property in the UK but their usual place of abode is outside of the UK; in this context 'resident' refers to whether they reside in the UK, rather than whether they reside in the property.

It is possible to be a non-resident landlord for the purposes of the non-resident landlord scheme while being a UK resident for other tax purposes.

A cut-out of the shape of Great Britain representing Non-resident landlord tax for landlords who receive UK rental income but live abroad.

Do you pay UK tax if you are a non-resident?

Non-residents only pay tax on their UK income, and not their foreign income; for example, if your primary residence was abroad and you spent 5 months of the year in the UK but did not work or have any income in the UK during that tax year, you would not have to pay UK tax regardless of your earnings from outside of the UK. If you had any income from the UK, you would pay income tax on any UK income over any tax-free allowance.

If you earn UK rental income as a non-resident landlord you will be liable to pay tax on it in the UK, even if you are already paying tax on your UK income in the country where you are tax resident.


What is the non-resident landlord scheme?

The Non-Resident Landlord Scheme imposes obligations on the tenant if the rent is more than £100 per week; or if you have one, on the letting agent.

The tenant or agent withholds the tax contribution on the rent. The landlord files their self-assessment tax return, calculating their total taxable income, less allowable expenses. The withholding tax paid through the NRLS is deducted from their tax bill.

Do I have to participate in the non-resident landlord scheme?

The scheme is not optional, but landlords can apply to receive the rental income gross (without having the tax withheld) if:

  • Their tax affairs are up to date,
  • They have never had to pay any UK tax, or
  • No UK tax liability is expected for the tax year (ie their total expected taxable income falls within the tax-free allowance).

If the application is successful, the landlord would not have the tax on the rent withheld on payment. They would still be required to file their self-assessment tax return and calculate their tax liability without any deduction for the NRLS.


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What is NRL1?

Individuals can apply online with form NRL1. If you own the property jointly, each non-resident landlord will have to apply separately, in respect of their share of the rental income. This would not exempt you from paying tax, but allow you to settle your tax liability in your self-assessment.

What is NRL2?

Use form NRL2 to apply if the applicant is a company.

What is NRL3?

Use form NRL3 to apply if the applicant is a trustee, including a corporate trustee.

Check your tax liability in the country where you are a tax resident

Some countries require you to pay tax on your worldwide income, which can mean you pay tax on your UK income twice, once here, and once at home. You may be able to apply for double-tax relief if your country of residence has a double-tax agreement with the UK. Speak to a tax specialist if you are paying tax on the same income, twice.


What is the non-resident rental tax in the UK?

20% of the rent is withheld for tax in the UK, through the NRLS, this is consistent with the basic rate of tax. If your earnings place you in the higher or additional rate bands, you will be taxed at the higher rate, this will be calculated in your end-of-year tax return and the 20% withholding tax already paid through the NRLS will be deducted from your final bill.

Income
Rate
£0 – £12,570 0%
£12,571 – £50,270 20%
£50,271 – £125,000 40%
£125,001 and above 45%

If the property is owned by a company, rather than a private individual, the corporation tax payable on rental income is between 19% and 25%.

The first £1,000 of income from property rental will be free of UK tax, this is called your 'property allowance' and this is dependent on there being no expenses claimed against the property.

A hand placing a coin into a house-shaped money box or 'piggy bank'. SAM Conveyancing discuss the non-resident rental tax in the UK

What is the personal allowance for non-resident landlords in the UK?

If you are a British citizen, the first £12,570 of your total income is tax free, as shown in the table above, whether you live in the UK or not; but as a non-resident and non-citizen, the basic rate of 20% will apply to your earnings above the £1000 property allowance. However, some double-tax treaties may allow you to claim the UK personal tax allowance. Speak to a tax specialist.


Tenant obligations

If you pay your rent to a UK letting agent they will operate NRLS, and you can just pay your rent as normal. HMRC say it will 'usually be evident' if the landlord usually lives outside of the UK. If you pay your landlord directly and have reason to believe they normally live outside the UK, you should check with them.

HMRC will write to you if your landlord lives outside the UK and you are not required to withhold tax or operate the NRLS.

If you are required to operate the NRLS as a tenant you will need to register with HMRC; write to them providing your name, address, the name and address of your landlord, and state that you need to register for the NRLS.

Calculating the tax liability.

You must withhold 20% of the rent you pay, plus any payments to third parties, where those payments are not allowable expenses to calculate rental profits. i.e. if the landlord told you to pay off their credit with a third party, instead of paying the landlord some of the rent.

HMRC state:
A letting agent using the NRLS must calculate tax each quarter on the rental income received, less deductible expenses they’ve paid. You should take into account:
all rental income you received in the quarter
rental income you did not receive in the quarter, but which is paid to a third party (including the non-resident landlord)

If you’re a tenant using the Scheme, you must calculate tax each quarter on the rental income you paid in the quarter. You should take into account:
all rental income you paid to the non-resident landlord in the quarter
all rental income you paid to third parties in the quarter, unless the payments are ‘deductible expenses’
You should take into account all rental income received or paid in the quarter, even if it relates to rent due for an earlier or later period. You should not calculate tax for a quarter on rental income that was due in the quarter but was not paid in the quarter.

You should take into account expenses you pay on behalf of the landlord that you can be ‘reasonably satisfied’ are allowable expenses in calculating the profits of the landlord’s rental business.

Information about the taxation of income from UK property can be found in the Property Income Manual.


What is NRLQ

This amount must be paid to HMRC with a quarterly tax return. The form NRLQ is normally issued to tenants or letting agents by HRMC for completion within 30 days of the end of each quarter. They end on 30th June, 30th September, 31st December and 31st March.

What is NRLY?

Tenants must also send an annual report to HMRC and the Landlord, by the 5th of July each year, using form NRLY.

What is NRL6?

Tenants must also send a certificate of tax liability to the Landlord, by the 5th of July each year, using form NRL6.

Keeping records

Tenants must keep four year's worth of records on the rent paid, with dates and amounts, any correspondence with the landlord about their residence status, and expenses paid, including dates, amounts, descriptions and copies of invoices and receipts.


Letting Agent obligations

Where the landlord uses a letting agent, the letting agent must operate the NRLS and meet the obligations which would otherwise fall on the tenant, even if the rent received is less than £100 per week. If HMRC has written to tell you that you can pay the rent to the landlord without withholding 20%, you'll still have to file an annual tax return (NRLY).

What is NRL4?

Letting agents must use form NRL4 to register for the Non-Residents Landlord Scheme, with HMRC.

What is NRL5?

Larger letting agents with different branches can use form NRL5 if they want each branch to be separately responsible for operating the Non-resident Landlords Scheme.

Frequently Asked Questions
Obligations
 
Expenses
JointlyOwned
MultipleTenants
F&F
Caragh Bailey, Digital Marketing Manager
Written by:

Caragh is an excellent writer in her own right as well as an accomplished copy editor for both fiction and non-fiction books, news articles and editorials. She has written extensively for SAM for a variety of conveyancing, survey and mortgage related articles.

Andrew Boast of Sam Conveyancing
Reviewed by:
Andrew started his career in 2000 working within conveyancing solicitor firms and grew hands-on knowledge of a wide variety of conveyancing challenges and solutions. After helping in excess of 50,000 clients in his career, he uses all this experience within his article writing for SAM, mainstream media and his self published book How to Buy a House Without Killing Anyone.

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