A Landlord's Guide to the Non-Resident Landlord Scheme
Landlords who rent out property in the UK but spend more than six months of the tax year living overseas must ensure they, their tenants, letting agent or tenant finders join the Non-Resident Landlord Scheme. It's not optional and triggers registration with HMRC.
Whether you are a non-resident landlord, a tenant renting directly from them or an agent, breaking those rules can lead to stiff tax penalties. Property expert Kate Faulkner breaks down what you need to know.
- What is a Non-Resident Landlord?
- Non-Resident Landlord Scheme Guidance
- Tenant obligations
- Tenant finder obligations
- Letting agent obligations
- Non-Resident Landlord Tax
- HMRC Non-Resident Landlord Tax Form (NRL1)
What is a Non-Resident Landlord?
Property investors are considered Non-Resident Landlords if they spend more than six months in any tax year outside the UK.
The Statutory Residence Test or other tax definitions of residence don't apply to Non-Resident Landlords. Instead, HM Revenue & Customs (HMRC) looks at their 'usual place of abode'. This is where a landlord may stay for more than six months, but it doesn't have to be a main or permanent home.
Under the scheme, a landlord can have UK tax residence but their 'usual place of abode' in another country.
Other Non-Resident Landlords include:
- Companies renting out property in the UK with a registered office or main place of business outside the UK.
- Members of the armed forces or Crown servants, such as diplomats, posted overseas.
- If a property is rented out by joint owners and one is a Non-Resident Landlord, the profits are usually split according to the share of ownership of each. But only the share of the Non-Resident Landlord comes under the scheme.
- Having a PO Box or 'care of' address in the UK is not enough for a landlord to claim a usual place of abode in the UK.
Non-Resident Landlord Scheme Guidance
If you are a landlord who is living outside the UK for over six months of a tax year, you must join the 'Non-Resident Landlord Scheme'. This means that letting agents, tenants and anyone finding tenants for non-resident landlords must pay any tax on rents due to the landlord, unless HMRC has told them not to do so in writing. Failure to do this could result in being fined.
Tenant obligations - if you pay rent to a Non-Resident Landlord or a third party (who isn't an agent)
Which tenants must operate the Scheme?
Unlike renting from a UK resident landlord, if you are a tenant renting directly from a Non-Resident Landlord this means withholding tax and making an annual return to HMRC declaring how much rent you have paid.
Which tenants do not have to operate the Scheme?
The only exception to withholding tax is if you are a tenant paying rent of less than £100 a week directly to a Non-Resident Landlord, or to a third party who isn't a letting agent. You will still need to submit an annual return
Non-Resident Landlord Application
Tenants should register with HMRC's Non-Resident Landlord Scheme within 30 days of the start of a tenancy.
To apply for the scheme, tenants should write to:
HM Revenue and Customs
Charities, Savings and International Operations S0708
PO Box 203
By July 5, tenants should send a rent report to HMRC on a NRLY form and a NRL6 form to the landlord.
Tenants should keep records of rent paid, emails or letters to landlords about where they live and details of any expenses paid for the landlord. It's important to keep this paperwork for four years.
Letting agents and tenants pay any withholding tax to HMRC quarterly. This means at the end of June, September, December and March.
How do tenants calculate the tax to withhold and pay?
- Add up any rent paid, or any rent the landlord had requested be paid to someone else.
- Take away any expenses paid for the landlord, such as repairs.
- Multiply the figure that remains by the basic rate of tax - 20% for the 2020-2 tax years.
Amanda pays her landlord £1,250 a month rent between April and June 2016. During that time she also pays £350 for insurance and £150 in plumbing repairs for her landlord.
Her rent was £1,250 x 3 months = £3,750
Deductible expenses were £500
The taxable amount is £3,750 - £500 = £3,250
The tax due is £3,250 x 20% = £650
Tenant finder obligations:
Anyone finding tenants for a Non-Resident Landlord doesn't have to withhold any tax on rents collected in advance for the landlord, providing:
- Any fees for sourcing tenants are deducted direct from the rent collected.
- The rent collected is for no longer than three months in advance and the tax due is less than £100.
Simon finds a tenant who pays £600 a month to a Non-Resident Landlord. Simon collects two months' rent from the tenant to cover his fee and the tenant pays rent directly to the landlord from the next month.
Simon's fee and expenses come to £750 and £90 tax is due on the balance of the rent. The tax is less than £100 so the transaction is outside the Non-Resident Landlord Scheme.
Tenants can face fines of up to £3,000 for filing incorrect returns to HMRC.
Letting agent obligations if you pay rent to a Non-Resident Landlord
Letting agents have no lower rent limit and should withhold tax on any rents they receive for a Non-Resident Landlord. They then need to make an annual return to HMRC declaring how much rent they've collected for the landlord.
Which letting agents must operate the Scheme?
Anyone operating formally as a letting agent needs to apply for the scheme, but this could also be anyone that lives in the UK for more than six months in a tax year who is helping a Non-Resident Landlord run their property business such as a friend or relative.
How letting agents should apply for the Non-Resident Landlord Scheme
Letting agents should register with HMRC's Non-Resident Landlord Scheme within 30 days of the start of a tenancy. To do this, letting agents complete and file an NRL4i form.
By July 5, agents should send a rent report to HMRC on a NRLY form and a NRL6 form to the landlord.
Letting agents need to retain records of rent paid, any correspondence including emails or letters to landlords about where they live and information about any expenses paid for the landlord. This paperwork needs to be retained for four years.
Non-Resident Landlord Tax
Non-Resident Landlords don't have special tax returns.
Individuals declare their rental income and expenses on the UK Property pages (SA105) of the self-assessment return, while companies complete and file a corporation tax return (CT600).
HMRC Non-Resident Landlord Tax Form (NRL1i)
Non-Resident Landlords who want to receive rents without any tax deductions by tenants or letting agents can complete and file a NRL1i form. Only the landlord can complete the form and HMRC can reject the application if there isn't a good record for filing returns and paying income tax.
HMRC will want to confirm:
- how long a landlord will live outside the UK
- personal information, such as a National Insurance number
- contact details
- information about any properties rented out in the UK