A Landlord's Guide to the Non-Resident Landlord Scheme
Strict rules apply to landlords who rent out property in the UK but spend more than six months of the tax year living overseas. Breaking those rules can lead to stiff tax penalties. Finance journalist Steve Sims breaksdown what you need to know.
- What is a Non-Resident Landlord?
- Non-Resident Landlord Scheme Guidance?
- Non-Resident Landlord Application
- Non-Resident Landlord Tax
- Non-Resident Landlord Tax Return
- HMRC Non-Resident Landlord Tax Form (NRL1)
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 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 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.
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.
Here’s what do for …
Tenants 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, don’t have to withhold tax.
However, tennants do have to make an annual return to HMRC declaring how much rent they have paid.
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.
A letting agent 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. This could be a friend or relative.
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.
Letting agents and tenants can face fines of up to £3,000 for filing incorrect returns to HMRC.
Letting agents and tenants should register with HMRC’s Non-Resident Landlord Scheme within 30 days of the start of a tenancy.
Letting agents complete and file an NRL4i form
Tenants should write to:
HM Revenue and Customs
Charities, Savings and International Operations S0708
PO Box 203
Letting agents and 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.
To work out how much tax to 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 2015-16 and 2016-17 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 £1,250x 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
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).
Non-Resident Landlords who want to receive rents without any tax deductions by tenants or letting agents, then complete and file a NRL1i form
Only the landlord can complete the form.
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
Joining the Non-Resident Landlord Scheme is not optional. Any landlord living outside the UK for more than six months in a tax year automatically qualifies and triggers registration with the HMRC. Landlords, letting agents tenant finders or tenants who ignore the rules could face significant fines.