HM Revenue & Customs (HMRC) have strict rules regarding income tax payable on profits for landlords who rent out their property in the UK when living abroad. As a non-resident landlord it is important to know what steps to take to ensure landlords tax is paid correctly.
Who are non-resident landlords?
Non-resident landlords (NRL) are classed by HMRC as anyone who rents out a property in the UK but resides abroad for 6 months or more of the year. This is based on where you actually live, rather than your main or permanent home, so is still applicable for those who are classed as a UK resident for tax purposes.
The Non-Resident Landlords (NRL) Scheme
The Non-Resident Landlord Scheme was introduced by HMRC in 1996 to tax the UK rental income of non-resident landlords. The scheme requires UK letting agents to deduct Basic Rate tax from any rent they collect from non-resident landlords, apart from in cases where the letting agent has confirmation from HMRC to pay the landlord their gross rental income.
If you are using a letting agent, be sure to be upfront about where you live for most of the year. The Non-Resident Landlord Scheme is not optional. Landlords, letting agents or tenants who do not comply with the rules can face significant fines.
Non-Resident Landlord Scheme: Letting agents
If you are a non-resident landlord using a letting agent, your agent will complete an NRL4i form to register with HMRC as a member of the Non-Resident Landlords Scheme. This must be done within 30 days of the start of the tenancy.
Your letting agent will withhold 20% tax on rent received on your behalf and will declare the amount of rent collected to HMRC annually.
The agent will pay the withheld tax to HMRC quarterly. Allowable expenses can be taken from the rental income before the 20% tax is deducted. Please note, landlords can no longer claim tax relief for wear and tear of furnishings.
Receive rent with no tax deducted
If you are a landlord who lives abroad, it is possible to receive rent from your letting agent without any tax deductions. To do this you simply have to complete a NRL1 form on the HMRC website – this is usually a straightforward process providing your tax affairs are in order.
Once your application has been approved, HMRC will send a copy of your approval number directly to the letting agent so they know they can pay you the gross rent each month. It is best to have this process completed before the tenancy begins to avoid having 20% tax withheld on your first rent payment whilst the form is being processed.
Non-Resident Landlord Scheme: No letting agent
In tenancies where the tenant is renting privately from a non-resident landlord, where there is no letting agent involved, the tenant is responsible for declaring the amount of rent they have paid to HMRC annually. In most cases non-resident landlords will choose to use a letting agent to avoid this task falling to their tenants.
Tenants who pay rent of £100 per week or less, directly to the landlord, or to a third party who are not a letting agent, do not have to withhold tax.