The Non-Resident Landlord Scheme
HMRC wrote in late 2019 to tenants of properties which they believe are owned by overseas companies or trusts to highlight the tenant’s obligations under the Non-Resident Landlord Scheme (NRLS). We provided more detail on what to do if you received one of these letters in a news article.
On this page, we discuss the NRLS in more detail and confirm what it means for you, whether you are a tenant or non-resident landlord. If you manage a UK property on behalf of a friend or family member overseas, you may also have obligations under the NRLS as a letting agent.
What is the Non-Resident Landlord Scheme (NRLS)?
The NRLS is a scheme to tax the UK rental income of persons who have a usual place of abode outside the UK – known as non-resident landlords. The NRLS imposes obligations on the tenant or the letting agent (if there is one). For the purposes of the NRLS, the tax year runs from 1 April to 31 March.
In order to understand the NRLS, it is important to understand that if you live overseas but you receive income from letting out a property in the UK, this income is generally taxable in the UK like any other UK-sourced income. This is the case regardless of whether or not you are resident or non-resident in the UK for tax purposes and regardless of where the income is physically paid.
However, 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 imposing 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.
Any tax withheld by the letting agent or tenant is then available as a deduction against the overseas landlord’s UK tax liability when they complete a UK Self Assessment tax return. The NRLS does not change either of the following:
- whether or not the overseas landlord is required to file a UK Self Assessment tax return (generally they would still be required to file a return, unless the property income was less than £2,500, there was no UK tax to pay and a return was not required for any other reason).
- whether or not the UK property income is taxable.
Am I a non-resident landlord for the purposes of the NRLS?
It is important to understand that being a non-resident landlord for the purposes of the NRLS is not the same thing as being a landlord who is non-resident for UK tax purposes more generally.
If you have UK rental income, you will be treated as a non-resident landlord for the purposes of the NRLS if you have a ‘usual place of abode’ outside the UK. This is not defined in law, but in practice HMRC normally regard an absence from the UK of six months or more as meaning a person has a usual place of abode outside the UK. Confusingly, it is therefore possible to be treated as a non-resident landlord for the purposes of the NRLS but in fact be UK resident for tax purposes.
Note that companies and trustees can also be non-resident landlords.
What do I need to do as a non-resident landlord under the NRLS?
Unless you register to receive your rental income paid without deduction of tax at source (by the letting agent or tenant), the NRLS does not specifically impose any obligation upon the non-resident landlord. However, if you have UK property income you usually have a separate obligation to file a UK Self Assessment tax return, on which you should deduct any tax paid under the NRLS from your UK tax liability.
You can, however, register to receive your rental income gross (that is, without any withholding tax deducted by the letting agent or tenant) under the NRLS if:
- your tax affairs are up to date; or
- you have never had any UK tax obligations; or
- you do not expect to be liable to UK tax for the year in which the application is made (for example, if your total taxable income for this year is expected to be within your UK personal allowance).
In this case, as a landlord you simply would report your rental income and expenses on a UK Self Assessment tax return and calculate the UK tax liability without any deduction for tax paid under the NRLS.
You can apply online or by post via form NRL1 to receive your rental income gross. If the property is jointly owned, then each non-resident landlord would need to apply separately in respect of their share of the rental income.
Registering to receive your UK rental income gross does not mean that the income is exempt from UK tax – it means that you can receive the rents in full in return for agreeing to settle the tax liability yourself.
You should also check the tax position in the country you reside in. If you are resident there, it is likely that you will be taxable on your worldwide income in that country. In the case where you are liable to pay tax in both the UK and your country of residence, you should explore whether you can get any relief for double tax in your country of residence. See What if I am liable to tax in two countries on the same income? for more information.
I am a tenant. How do I know if I have any obligations under the NRLS?
The law requires you to comply with a number of obligations under the NRLS (known as ‘operating’ the NRLS) if:
- you pay rent directly to a landlord who has their usual place of abode outside the UK (or to some other intermediary who is not a UK letting agent) and
- you pay the landlord more than £100 a week in rent.
You may also be required to operate the NRLS if HMRC specifically ask you to do so.
Tenants have the right to deduct any tax they have to pay under the NRLS from their rent, or from any other money owing to the non-resident landlord. They also have the right to recover from the landlord any tax they have to pay under the scheme where they did not deduct it from their rent or other money owing.
However, as a tenant you are not required to deduct tax or submit annual returns under the scheme if HMRC have written to you advising that you are not required to do so.
How do I know if my landlord has their usual place of abode outside the UK?
HMRC state that this will ‘usually be evident’ without the need for special enquiries. In cases of doubt, you should try to obtain more information from the landlord to satisfy yourself on the point. However, if there is no reason to believe that a landlord has their usual place of abode outside the UK, then there is no need to make any special enquiries and in this case you are not required to operate the NRLS.
Remember that if you pay your rent to a UK letting agent, then you will not be required to operate the NRLS.
What if there is more than one landlord?
If there is more than one landlord (for example, if the property is jointly owned) then you should consider that you are paying a share of the rent to each landlord and apply the £100 a week threshold separately to each landlord. For example, if you rent a property for £150 a week but the property is jointly owned in equal shares by a husband and wife who are each non-resident landlords, then you are not required to operate the scheme as the amount payable to each landlord is only £75 a week – even if the rent is paid as a single amount each week (or month, as the case may be).
Where there is more than one non-resident landlord to whom you pay rent of more than £100 a week, you will be required to operate the NRLS in respect of the rent paid to each such landlord. This means you will be required to deduct tax from rent paid to a particular landlord unless HMRC have authorised you to pay rent without deduction of tax to that particular landlord. In order not to be required to deduct any tax from the rent paid and not submit an annual return, HMRC must authorise you to pay rent without deduction of tax to each landlord.
What if there is more than one tenant?
The £100 a week limit applies separately to each of the tenants in respect of his or her share of the rent. For example, suppose two people share a property under a joint lease for £150 a week and the property is owned by a single non-resident landlord. Each tenant’s share is only £75 a week, so neither of them are required to operate the NRLS.
However, where two or more people share a property but only one of them is the tenant under the lease, the £100 a week limit applies to that person in respect of all of the rent payable under the lease.
If more than one tenant is required to operate the NRLS, they must do so in respect of their share of the rent which is paid directly to the overseas landlord.
I am a tenant and I am required to operate the NRLS. What are my obligations?
If you are required to operate the NRLS, you must register with HMRC by writing to them. You should give your own name and address, that of your landlord, and state that you wish to register for the non-resident landlord scheme.
Then, unless HMRC have advised that you do not need to, you need to work out and pay the tax to HMRC within 30 days of the end of each quarter, using return form NRLQ. The form is normally issued to tenants by HMRC. The four quarters end on 30 June, 30 September, 31 December and 31 March.
You must send a report each year by 5 July to HMRC and the landlord using form NRLY.
You must also provide the landlord with certificate NRL6 each year by 5 July.
You must keep records for four years of:
- Rent you have paid, with dates and amounts
- Correspondence with the landlord (if you have contacted them about their residence status)
- Expenses you have paid, including dates, amounts, descriptions, copies of invoices/receipts
How do I work out the tax payable under the NRLS?
If you are a tenant who is required to withhold tax under the NRLS, then you must do so at the basic rate (currently 20%) on rent paid in the relevant quarter plus any payments you make to third parties where those payments are not deductible expenses for the purposes of calculating rental profits. An example of such a payment made to a third party might be if the landlord instructed you to settle a loan to a third party instead of paying the landlord part of the rent.
Please see our separate guidance for details on the kind of expenses which are deductible against property income. Broadly, they must be incurred wholly and exclusively for the purposes of the rental business and they must not be of a capital nature.
The tenant or letting agent must be ‘reasonably satisfied’ that the expenses will be allowable in computing the profits of the landlord’s rental business.
No deduction is available for expenses paid by the landlord themselves. Tax must be calculated at the basic rate under the NRLS, even if the landlord does not pay any tax (for example, because their total UK taxable income is within their UK personal allowance).
There is an example of how to calculate tax under the NRLS on GOV.UK.
I manage a UK property on behalf of a friend or family member overseas. Am I treated as a letting agent for the purposes of the NRLS?
Potentially, yes. You will be treated as a letting agent if:
- your usual place of abode is in the UK, and
- you act on behalf of a non-resident landlord in connection with the management or administration of their UK rental business; and
- you have power to receive income of that rental business, or you have control over direction of that income; and
- you are not an ‘excluded person’ (broadly, you are an ‘excluded person’ if your activity is confined to the provision of legal advice or legal services).
This means that you will have the full set of obligations under the NRLS (such as registering with HMRC, accounting quarterly for the tax, sending annual returns and providing certificates to the landlord, etc.).
You will be required to send quarterly returns (on form NRLQ) with the quarterly payments (unless no tax is due and no notice is received to complete one).
Letting agents have some additional requirements under the NRLS compared with tenants, namely:
- if HMRC have written to you to say that you are authorised to pay the rent without deduction of tax at source (in the case where the landlord themselves has applied to receive the rent gross), then you are still required to file an annual return;
- as a letting agent there is no exemption from the requirement to operate the scheme if the rent payable is no more than £100 a week.
Where can I find more information?
You can find guidance on the NRLS on GOV.UK.
HMRC also publish detailed guidance on the rules for the scheme on GOV.UK.