A Taxing Issue: Non-Resident Landlords

If you’re a landlord living outside of the UK, you’ll be subject to different tax rules, so it’s essential you understand the regulation to make sure you don’t fall foul of the law.

UK landlords who spend six months or more living abroad every year must have tax deducted from their rental income at source unless they apply for an exception from HM Revenue & Customs (HMRC).

Non-resident Landlord (NLR) Scheme

The Government’s Non-resident Landlord (NRL) Scheme, which launched in 1996, requires letting agents and tenants to deduct the basic rate income tax (currently 20%) from rent payments. This must be declared and paid to HMRC quarterly. The deduction is not necessary for tenants who pay £100 a week or less in rent.

The scheme is not optional. Landlords, letting agents and tenants who fail to follow the rules can face significant fines.

What Is A Non-Resident Landlord?

Non-resident landlords are defined as anyone who spends six months or more of any year living outside the UK, regardless of where their primary or permanent home is. This means the NRL Scheme applies to landlords who are classed as UK residents for tax purposes if they live abroad.

The letting agent will need to register with HMRC as a member of the NRL scheme and will be legally required to deduct 20% tax from rent payments to NRL landlords. This will be paid quarterly to HMRC, and an annual tax declaration will be completed. Landlords can take expenses from the rental income before the deduction but can no longer claim tax relief for wear and tear on furnishings.

When the tenant becomes responsible

If a tenant is renting privately from a non-resident landlord, the tenant is responsible for registering for the scheme, deducting 20% and declaring how much they have paid in rent to HMRC annually.

Preventing Deductions At Source

Landlords who do not wish to have tax deducted can complete an NLR1 form on the HMRC website. Provided their tax affairs are in order, this should be a simple process, and HMRC will advise the letting agent or tenant that no deductions are needed.

However, it is vital to complete this process in plenty of time to avoid initial deductions before receiving confirmation from HMRC. If the form is still processing, a letting agent or tenant will be obliged to withhold 20% of the rent payment until advised otherwise.

Letting agents and tenants who do not have to withhold 20% tax still need to register with HMRC for the NRL Scheme and submit an annual report.

Clan Gordon looks after more than 500 rental properties in and around Edinburgh, and our professional team have extensive experience in the lettings market - and supporting our landlords with these matters.

If you are looking to rent out your property in the city and the surrounding area, Clan Gordon is consistently rated Edinburgh’s best letting agent by landlords and tenants.

Schedule a call today for peace of mind your property is in safe hands.

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