Non-Resident Landlord Scheme

Introduction

If you're a landlord who lives abroad and earns rental income from UK property, you must pay UK tax on that income through the Non-Resident Landlord Scheme. Under this scheme, your letting agent or tenant deducts tax from your rent before paying you — unless you've successfully applied to HMRC to receive your rental income without tax deducted (often called receiving rent 'gross').

Who the scheme applies to

You're considered a non-resident landlord if you live abroad for more than 6 months of the year. The Non-Resident Landlord Scheme applies whether you're an individual, a company, or a trustee.

The scheme covers income from various sources, including:

• Letting furnished or unfurnished residential or commercial property
• Charges for furniture in a rented property
• Sporting rights such as fishing and shooting permits
• Service charges
• Insurance payments for non-payment of rent
• Allowing land to be used for waste storage
• Payments for allowing filming or other use of your property
• Static caravans or houseboats

When tax must be deducted from your rent

If you're a letting agent, you must deduct tax from rent payments regardless of the amount you collect, unless HMRC has written to confirm the landlord can receive rent without tax deducted.

You're considered a letting agent under the scheme if you:

• Help the landlord run their UK rental business
• Receive rent or control where it goes
• Live in the UK for more than 6 months a year

A letting agent can be an estate agent, solicitor, accountant, or even a friend of the landlord.

If you're a tenant, you must deduct tax from rent if:

• You pay more than £100 per week in rent
• Your landlord lives abroad
• You don't pay through a letting agent

Tenants paying less than £100 per week don't need to operate the scheme.

Exception for tenant-finders

Tenant-finders who collect their fee from rent payments don't have to operate the scheme if:

• Rent is collected for no more than 3 months
• The tax due is no more than £100

If rent is collected for more than 3 months, the scheme must be operated even if the tax due is less than £100.

How much tax to deduct

Tax is calculated quarterly on the net rent (total rent minus deductible expenses paid).

To work out the tax:

1. Add up all rent received in the quarter, including any uncleared cheques and money paid to others at the landlord's request

2. Deduct any deductible expenses you paid in the quarter

3. Multiply the result by the basic rate of Income Tax (20%)

Example: A tenant pays £1,500 rent in a quarter, made up of £200 for plumbing repairs, £100 to pay off the landlord's loan, and £1,200 to the landlord. The plumbing repairs are deductible, so tax is calculated on £1,300 (£1,500 - £200). The tax due is £1,300 × 20% = £260.

Payment and reporting deadlines

Quarterly payments: You must send tax payments to HMRC within 30 days of the end of each tax quarter:

• 30 June
• 30 September
• 31 December
• 31 March

HMRC may charge interest on late payments.

Annual reporting: By 5 July each year, you must:

• Send form NRLY (annual information return) to HMRC and the landlord
• Provide the landlord with certificate NRL6 showing the tax deducted

Record keeping: Keep records for 4 years including rent received or paid (with dates and amounts), correspondence with the landlord, and details of expenses paid with invoices and receipts.

Applying to receive rent without tax deducted

As a non-resident landlord, you can apply to receive your rental income without tax deducted. HMRC will approve your application if they're satisfied the form is complete and you'll meet all your UK tax obligations.

If you're an individual landlord

You can apply online or by completing form NRL1 and posting it to HMRC. You'll need to provide:

• Your Unique Taxpayer Reference (UTR), if you have one
• Your National Insurance number, if you have one
• Your principal residential address
• The reference number for any letting agent handling your rental income

If you want to authorise a tax agent to act on your behalf, don't use the online service. Instead, complete form 64-8 (authorising your agent) and send it with your NRL1 form.

If you're a non-resident company

Non-resident companies can apply if they:

• Are incorporated outside the UK
• Have no place of business in the UK
• Are not regarded as UK tax resident

You can apply online (if not using a tax agent) or by completing form NRL2. You'll need your UTR if the company has completed Self Assessment or Company tax returns, and any letting agent reference numbers.

Company forms must be signed by the company secretary or a duly authorised officer.

After you apply

HMRC will send a notice of approval to you (or your tax agent) with an approval reference number. They'll also send a separate notice to any tenants or letting agents named on your application, authorising them to pay rent without deducting tax.

The approval date is usually the first day of the quarter in which HMRC received your application. From that date, rent should be paid without tax deducted.

For non-resident companies, if you're not already registered for Corporation Tax, HMRC will register you and you'll become liable to Corporation Tax from the approval date.

HMRC may check applications in more detail after initial approval and can request additional information. Failure to provide information may result in withdrawal of approval.

If your application is refused

HMRC may refuse your application if they're not satisfied that:

• The information provided is correct
• You'll meet all your UK tax obligations

If refused, you'll receive a notice explaining how to appeal. You must appeal in writing within 90 days of the notice date. If the appeal can't be settled by agreement, an independent appeal tribunal will hear it.

Your ongoing obligations

Even if approved to receive rent without tax deducted, you remain responsible for:

• Reporting your UK rental income on a tax return
• Paying any tax due
• Keeping proper records

Individuals will continue to complete Self Assessment tax returns. Non-resident companies approved from 6 April 2020 onwards become liable to Corporation Tax on their UK property income.

Sources

• Apply as an individual to receive UK rental income without UK tax deducted
• Apply as a company to receive UK rental income with no UK tax deducted
• Paying tax on rent on behalf of landlords who are abroad

This article provides general guidance based on current HMRC rules. For advice specific to your situation, speak to your accountant.