If you own property in the UK but live abroad, or you rent a home from someone who is a non-resident in the UK, there is a corner of the tax system that catches a surprising number of people off guard. The Non-resident Landlords Scheme surprises people as it quietly shifts a tax responsibility onto whoever is closest to the money. Sometimes it could be the letting agent, it could even be the tenant. Imagine that; you are a tenant, but you are responsible for your landlord’s tax compliance. Let us walk through it properly, without the jargon.
What exactly is Non-Resident Landlord Scheme (NRLS)?
If the landlord earns rental income in the UK, but they live overseas, it could get difficult for HMRC to collect the income tax (or corporation tax in case of corporate landlords). Rather than wait for a landlord in another country to file and pay, HMRC asks the person handling the rent in the UK to deduct tax at the basic rate before the money leaves the country, and to pass that tax on directly.
This way, the tax gets deducted close to the source itself, and the risk of lost tax revenue for HMRC shifts to risk of noncompliance for taxpayer, agent, or tenant.
Who is a non-resident landlord.
The scheme does not hinge on where you are resident for tax. It is considering your “usual place of abode”, or simply put, where you, ordinarily live.
HMRC normally treats an absence from the UK of six months or more as meaning your usual place of abode is outside the UK. You can be UK resident for tax purposes and still be caught by this scheme, because the two tests are not the same thing. It will be wrong to assume that if you are a UK resident for tax purposes, you are automatically outside the remit of NRLS.
The scheme can apply to individuals, companies, trustees and partnerships. If you own a property jointly with your spouse or civil partner, each of you is treated as a separate landlord for your own share, which matters more than it first appears.
Who actually does the reporting.
If you have a UK letting agent, they must operate the scheme. It does not matter how small the rent is. The obligation sits with them, and a good agent will handle it quietly in the background.
If you do not have a letting agent, the responsibility can fall on the tenant. A tenant paying rent directly to a non-resident landlord may have to operate the scheme themselves once the rent they pay averages more than £100 a week, which works out at roughly £5,200 a year. Below that figure a tenant generally does not have to operate the scheme unless HMRC specifically tells them to.
Most tenants have no idea this obligation exists. That is precisely why it causes problems.
But there is a better solution.
If you are subject to NRLS, that means the tax need to be deducted and remitted on a quarterly basis to HMRC. In this climate of soaring mortgage rates and inflation many landlords are facing even a negative cashflow, especially the individual landlords who are under the s.24 finance cost restrictions, and paying the taxes in advance on a quarterly basis is not ideal.
However, a non-resident landlord can apply to HMRC to receive their rent with no tax deducted at all. Approval does not remove the tax. It simply means you settle it yourself through Self Assessment rather than having it withheld at source, which is usually far more comfortable for cash flow.
If you are not subject to tax on account, you have to pay the taxes only on on before 31 January of the year following tax year against the current period quarterly payments.
To apply for the same, you need to use the correct form one for individuals (form 1), form2 for companies, and 3 for trusts. HMRC will generally give approval where your UK tax affairs are up to date. Once approved, your agent or tenant can pay you the rent in full.
If you own abroad and have never arranged this, it is very often the single most useful thing you can put right.
If you still choose to run the NRLS for any reason, the scheme runs on a quarterly rhythm. The quarters end on 30 June, 30 September, 31 December and 31 March, and any tax due is paid to HMRC within 30 days of each quarter end. On top of that there is an annual information return after the tax year, and, where tax has been deducted, a certificate given to the landlord so they can set that tax against their own liability.
If you are a landlord abroad without an agent, or a tenant paying rent to someone overseas, the responsibility may already be yours, and unpaid tax has a way of arriving with interest attached.