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What Does the Non Resident Landlord Scheme UK Mean For Overseas Landlords with UK Properties?

June 6, 2024

If you’re an overseas landlord, you’ll quickly become acquainted with the Non Resident Landlord Scheme UK (NRLS). This scheme requires letting agents to deduct tax at a basic rate of 20% from your rental income unless you state otherwise. Given the high rents in central London, this can amount to a substantial sum. Here’s what you need to know about the NRLS and how it impacts overseas landlords with properties in central London.

Who is Considered a Non Resident Landlord ?

HMRC defines an overseas or non-resident landlord as someone who rents out property in the UK and whose normal ‘place of abode’ is outside the UK. This applies even if you are a British citizen living abroad for more than six months, including temporary relocations, members of the armed forces, or crown servants stationed abroad.

The Non Resident Landlord Scheme UK

The Non-Resident Landlord Scheme UK ensures that HMRC collects tax on UK rental income from landlords who reside outside the UK. If you do not register for the NRLS, your letting agent is legally required to deduct 20% tax from your rental income each quarter.

How to Apply for the Non Resident Landlord Scheme UK

You can apply for the Non Resident Landlord Scheme UK online using the Government Gateway tax service or through a postal application. For online applications, you need a Government Gateway user ID and password. For postal applications, if you are authorizing an agent to apply on your behalf, you must submit a completed 64-8 Agent Authorisation form alongside the NRL1.

Options for Non-Resident Landlords Under the NRLS

Using a Letting Agent

  1. Allowing Your Letting Agent to Withhold Tax: Your letting agent will deduct 20% tax from your rental income and pay it to HMRC. They must join the Non Resident Landlord Scheme UK by submitting an NRL4i form within 30 days of the start of the tenancy. You must then complete a self-assessment return at the end of the tax year.
  2. Receiving Rent with No Tax Deducted: You can manage your tax affairs yourself by submitting an NRL1i form to HMRC. If HMRC approves your application, they will inform your letting agent that no tax deductions are required. You must then declare your rental income on your self-assessment return at the end of the tax year.

Without a Letting Agent

If you do not use a letting agent, your tenant must withhold 20% of the monthly rent for tax if the rent exceeds £100 per week. Tenants must register with the Non Resident Landlord Scheme UK within 30 days and pay the deducted tax to HMRC quarterly. At the end of the tax year, they must submit an NRLY form to HMRC and an NRL6 form to you.

Administrative Impact of UTR and Non Resident Landlord Scheme UK

If you are solely a subcontractor under the Non Resident Landlord Scheme UK, there are no additional administrative requirements unless you become a contractor. This is also applicable for customs purposes. However, if you provide services to individuals without a VAT number, you must register for VAT in the UK. For goods, if they are solely exported (not imported into the UK), there are no VAT obligations.

Self-Assessment Tax Returns for Non-Resident Landlords

Non-resident landlords who receive approval to receive rent without tax deductions are typically required to file an annual self-assessment tax return. If expenses are deductible from taxable rental income but not for calculating tax withheld at source, filing a tax return may result in a tax refund.

Non-UK Resident Companies and the NRLS

Non-UK resident companies are subject to corporation tax on UK rental income at rates between 19% and 25%. Companies must file Company Tax Returns within 12 months of the end of their accounting period and notify chargeability to corporation tax within three months of becoming liable.

Capital Gains Tax for Non-Resident Landlords

Different rules apply to the taxation of capital gains. Non-UK resident individuals and trustees must file a tax return and make a capital gains tax payment within 60 days of disposing of UK property. UK residents are subject to the same time limit for taxable gains on UK residential property. Companies are subject to different rules.

Conclusion

Understanding the Non Resident Landlord Scheme UK is crucial for overseas landlords with properties in central London. By ensuring compliance with the NRLS, you can avoid unnecessary penalties and manage your UK rental income tax efficiently. For further information, visit our Private Clients service page or feel free to contact us.

Non Resident Landlord

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