Author: Gina Christodoulou
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.
What is the Non-Resident Landlord Scheme (NRLS)?
Under this scheme, letting agents, tenants and anyone finding tenants for non-resident landlords must pay any tax on rents due, unless HMRC has told them not to do so in writing. Failure to do this could result in being fined.
As it can be difficult for HMRC to pursue individuals who live outside the UK and do not comply with their UK tax obligations, UK law seeks to collect tax on the rental income before it is paid to the overseas landlord under the NRLS. It does this by enforcing on the UK letting agent an obligation to withhold tax on the rental income before it is paid to the overseas landlord. Where there is no UK letting agent, the tenant themselves must withhold tax personally if the rent they pay to the overseas landlord is more than £100 a week.
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.
How do I ensure I have registered correctly as a Non-resident landlord?
SAIL can assist tenants and letting agents with completing the rent report for HMRC on a NRLY form and a NRL6 form if you’re a UK letting agent or tenant who has deducted tax from the rental income of a landlord based outside the UK. The NRL6 certificate must be given to the landlord and a copy kept for HMRC audit purposes. You must send a report each year by 5 July.
What if I don’t want my tenant or agent to deduct Non-resident Landlord tax directly from my rents?
This will not apply for all non-resident landlords, but you can try apply for exemption.
Non-Resident Landlords who want to receive rents without any tax deductions by tenants or letting agents can complete and file a NRL1i form. Landlords are required to 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
Speak to a member of the SAIL team if you would like assistance completing the NRL1i form.
How do tenants calculate the tax to withhold and pay?
To work out the tax you need to pay you must add up the total rent in the 3 months, include any uncleared cheques and money you paid to someone else at the landlord’s request.
Deduct any deductible expenses you paid in the quarter to give the net rent. Multiply the net rent by the basic rate of Income Tax.
HMRC may check that you have paid the right amount and interest may be charged on late payments.
Steps:
- Add up any rent paid, or any rent the landlord had requested be paid to someone else in the three-month period
- 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.
Example
Emma 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
Be careful, Tenants can face fines of up to £3,000 for filing incorrect returns to HMRC!
How to make a payment
You must send payment within 30 days of the end of each tax quarter – 30 June, 30 September, 31 December and 31 March.
Where can I find more information?
You can find guidance on the Non-resident landlord Scheme on GOV.UK.