The Non-Resident Landlord Scheme (NRLS) was established in 1996 to ensure landlords who do not live in the UK pay taxes on their UK-generated rental income. With high rental yields, property security and increasing rental demand, the UK property market has become an attractive place for overseas landlords to invest.

For landlords residing in another country or spending significant periods outside of the UK, it is important to understand the potential tax implications that might be imposed on your rental income through the Non-Resident Landlord Scheme.

This article provides a detailed guide to the Non-Resident Landlord Scheme, highlighting the requirements and obligations of all parties involved, including non-resident landlords, letting agents and tenants.

Table of Contents

What is the Non-Resident Landlord Scheme?

The Non-Resident Landlord Scheme (NRLS) is a scheme devised by HMRC that ensures the rental income earned by landlords living outside the UK is taxed appropriately. The scheme aims to ensure the UK government receives the appropriate tax from non-residential landlords. The NRLS creates a legal obligation on tenants or letting agents to subtract a basic taxation rate from rental income before transferring funds to a non-resident landlord.

Who qualifies as a non-resident landlord?

A Non-Resident Landlord (NRL) can be an individual, company, or trustee who receives rental income from any property in the UK but whose ‘usual place of abode’ is outside of the UK. An NRL does not have to be a British citizen, and tax implications apply to anyone who meets the residency criteria. The three categories of Non-Resident Landlords include:

  • Individuals: UK citizens or foreign nationals who own rental property in the UK but spend six months or more outside the UK.
  • Companies: A company registered outside the UK but owns a UK rental property that generates rental income.
  • Trustees: A trust holding UK rental property that generates rental income, in which the trust’s beneficiaries reside outside the UK.

To qualify as a Non-Resident Landlord, a landlord is required to fulfil specific criteria, which include:

 
  1. Usual Place of Abode: The landlords ‘usual places of abode’ must be outside the UK.
  2. Ownership of a UK Rental Property: The property must be in the UK.
  3. Proof of Rental Income: A rental income must be produced on the UK property to qualify as an NRL

Usual Place of Abode

To qualify as a Non-Resident Landlord, a landlord must provide evidence that their ‘usual place of abode’ is outside the United Kingdom. Their residence status for UK tax purposes is not determinative, and therefore, even non-UK residents can be liable for UK taxation.

While HMRC states that there is no statuary definition of a ‘usual place of abode’, the NRL Scheme applies to all landlords living outside the UK for at least six months.

 

Registering for the Non-Resident Landlord Scheme

Non-resident landlords must register to sign up for the Non-resident Landlord Scheme to manage their tax obligations. To sign up for the NRLS, landlords must follow a three-step process:

  1. NRL Form: Complete an Non-Resident Landlord Scheme Form. For individuals, this is an NRL1 form, for companies, an NRL2 form, and for trustees, an NRL3 form.
  2. Provide Supporting Documentation: Evidence that supports the landlord’s overseas residence; this can include utility bills, lease agreements or banking information.
  3. Submission to HMRC: The completed forms and documentation must be sent to HMRC for review and acceptance.

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Applying for Gross Rental Income as a Non-Resident Landlord

Once a non-resident landlord has registered with HMRC for the NRL scheme, they may be able to opt to receive rental income at gross (without funds being withheld from letting agents or tenants for tax purposes). This approval should not be automatically assumed. HMRC will evaluate the landlord’s application and decide whether to grant approval based on their submitted documentation and tax compliance history.

Conditions for Approval from HMRC

The conditions that HMRC consider for approval of gross rental income depend upon the following:

  • The landlord’s tax affairs are up to date with HMRC
  • Supporting evidence of non-residency
  • Compliance history with HMRC
  • No outstanding debts to HMRC

A landlord can still opt to have their income taxed at source. Registering to receive rental income at gross does not mitigate any UK tax obligation. The Landlord has simply chosen to settle any tax obligations themselves through HRMC.

Landlords must review their tax position in their country of residence. Any rental income worldwide will likely need to be accounted for in that country.

In some cases, landlords liable to pay tax in both the UK and their country of residence can take advantage of double tax relief.

 

Current Tax Rates for Rental Income

The rental income received by non-resident landlords is subject to an initial basic tax deduction at source. A non-resident landlord must submit a self-assessment tax return to HMRC to account for their total property rental income and any allowable deductions. You can view the current UK rental income tax rates in our UK Tax Rates article.

The UK taxation is based on a progressive taxation model. For an additional rate taxpayer, income will be taxed accordingly at varying rates for the appropriate level of income received.

An NRL must consider any allowable expenses that could be deducted from their property rental income, as this can significantly affect the total amount of tax liable.  Our team at DS Burge and Co can help ensure that any allowable expenses are taken advantage of, so get in touch.

Mortgage payments are an allowable expense for companies and trusts; this is no longer true for individuals who own UK property.

What is the personal allowance for non-resident landlords in the UK?

A non-resident landlord might be able to take advantage of a personal tax allowance. Non-resident landlords will only be eligible for a personal tax allowance if they meet any of the following criteria:

  • They are a British citizen
  • They are a citizen of a European Economic Area (EEA Country)
  • They have worked for the UK government at any time during the tax year

Non-resident landlords might be able to claim a personal tax allowance if it is included in the double taxation agreement between the UK and the country that they live in.

What is a Non-Resident Landlord’s Responsibility under the Landlord Scheme?

Once a non-resident landlord registers with NRLS, they must submit an annual self-assessment tax return with HMRC. They must submit a self-assessment regardless of whether they have received their rental income gross or net of the tax deduction.

The self-assessment tax return enables HMRC to ensure that the correct level of tax has been paid for all UK rental income and makes allowances for any applicable expenses to ensure the correct tax liability is imposed. The self-assessment tax return dates can be found in our important filing dates for personal tax calendar.

For non-resident landlords that have been accepted to receive rental income at gross, a quarterly tax payment must be made to HMRC within 30 days of each quarter’s end date. This is done through an NRLQ form, with landlords making the total tax payment due in the given quarter.

Letting Agent Obligations Under the Scheme

A letting agent is an individual or company that manages rental properties on behalf of a landlord, carrying out any tasks required to manage and maintain the properties. Letting agent tasks range from finding new tenants to collecting rent, arranging maintenance, and ensuring compliance. In the context of the non-resident landlord scheme, the role of the letting agent extends to ensuring the correct tax responsibilities are upheld on behalf of the landlord.

Registering with HMRC

To comply with the non-resident landlord scheme and carry out tax obligations on behalf of the landlord, the letting agent must register with HMRC. This process involves:

  • Complete an NRL4 Form: The NRL4 form is the official registration form for letting agents to register to manage NRLS on behalf of landlords. It provides details about the letting agent and the properties they manage to HMRC.
  • Compliance: Letting agents must adhere to HMRC requirements for operating an NRL Scheme.
  • Submit Information about Properties and Landlords: Letting agents must provide HMRC with information about each non-resident landlord they manage and the properties they oversee.

Withholding Tax Deductions

For non-resident landlords who do not receive their rental income at gross, it is the letting agents’ responsibility to withhold the correct percentage of the rental income before transferring the remaining balance to the landlord. The letting agent must:

  • Ensure the correct calculation of tax: Deduct the correct percentage of the rental income received each month.
  • Deduct tax from each rental payment: Ensure tax payments are deducted from each rental payment and withheld.
  • Make quarterly payments to HMRC: Submit tax payments to HMRC within 30 days of each quarter’s end date.

The letting agent is legally liable for any penalties for failing to carry out these obligations correctly.

Tenant Obligations Under the Scheme

The tenant operates the non-resident landlord scheme when no letting agent is involved. This can include both private and commercial tenants.

The obligation of a tenant operating under the NRL scheme includes:

  • Withholding Tax: Tenants must withhold the correct percentage of tax from rental payments to the landlord.
  • Submitting Quarterly Tax Payments: Tenants must send any deducted tax to HMRC alongside a quarterly return detailing the rental payments and tax deductions made.
  • Providing Certification of Tax Deductions: Tenants must provide the landlord with a certification each quarter detailing the amount of tax deducted and paid to HMRC.

Failure to meet the obligations of the NRL scheme correctly can result in penalties that the tenant is liable to pay.

Handling Multiple Landlords

If more than one landlord owns the property, each landlord must register individually with the non-resident landlord scheme. This ensures the accurate tracking of tax obligations and income each landlord receives from the properties owned. Each landlord will also be required to submit their own self-assessment form, as tax liabilities might vary depending on the individual’s personal tax situation.

Process for each landlord to register individually

For each landlord to register individually for the non-residence landlord scheme, they must:

  • Obtain Separate Gross Income Approval: Each landlord must request gross income tax management approval.
  • Provide Proof of Non-Residency: Each landlord must provide evidence to support their non-UK residency claim.
  • Submit individual NRL Form: Each landlord must submit their own NRL1, NRL2 or NRL3 form, respectively.

How tax deductions are handled in joint ownership situations

In a joint ownership arrangement, the tax deduction under NRLS is calculated and paid based on each landlord’s percentage share of the rental income. Where the management of the NRLS falls to the letting agent or tenant, they must:

  • Establish Landlord Share Split: Identify the percentage ownership breakdown of the property.
  • Deduct Tax by Share Percentage: Deduct the correct percentage from each of the rental payments to the landlords.
  • Ensure Payment to HMRC: The letting agent or tenant must pay tax to HMRC and provide a breakdown of the rental income and tax payments based on each landlord’s share of the property.

Conclusion

The Non-Resident Landlord Scheme plays a crucial role in ensuring that non-resident landlords pay the correct tax on their UK rental income. By helping landlords understand their responsibilities and ensure compliance with HMRC, the NRLS can enable them to manage their tax affairs correctly and take advantage of tax deductions.

At DS Burge & Co, we offer a range of services to support non-resident landlords in managing their rental properties, secure in the knowledge that they are fully compliant with tax regulations and optimised for tax efficiency.

Contact us today to learn how we can help you navigate the NRL scheme and your UK rental property tax.