non-resident landlord scheme

A Complete Overview of the Non-Resident Landlord Scheme

Whether you are a non-resident landlord or a renter, we go into greater depth about the non-resident landlord scheme (NRLS) on this page and explain what it implies for you. You can also be subject to NRLS responsibilities as a renting agent if you oversee a UK property for a friend or relative who lives abroad.

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Who is a Non-Resident Landlord

Knowing who is a non-resident landlord is more complicated than figuring out who is a general non-UK resident based on the Statutory Resident Test.

A non-resident landlord is defined more broadly as a person who rents out a property in the UK but is not regarded as a permanent resident of the country. Although there are no rules that specifically define this, a person who rents a property in the UK and leaves the country for more than six months in a row is probably a non-resident landlord.

As a result, it is feasible to be a non-resident landlord and a UK tax resident under the Statutory Residence Test. Therefore, you must comprehend your UK tax responsibilities and the Non-Resident Landlord Scheme if you rent a UK home and spend a sizable portion of any tax year outside of the UK.

How Does the Non-Resident Landlord Scheme Work?

In the UK, HM Revenue and Customs (HMRC) enforces a tax law known as the Non-resident Landlord Scheme (NRLS). Its purpose is to guarantee that landlords who are not UK residents and who own and rent out property pay the required taxes on their rental revenue. Landlords who live abroad in the UK for more than half of a tax year yet receive rental income from UK-based properties are subject to the NRLS. This implies that a landlord is considered a non-resident if their principal residence is abroad for more than half of the tax year, even if they keep a property or other connections within the UK. Non-resident landlords are required by law to pay taxes on rental revenue under the NRLS. Regardless of their tax residency status in another nation, non-resident landlords are legally required to pay tax on rental revenue from UK properties. All non-resident landlords should be aware of this important obligation to prevent any potential tax problems.

There are two methods of tax payments:

  • Tenants or letting agents are required to withhold tax from rental revenue before making payments to the landlord in the majority of situations where the property generates more than £100 per week. The withholding tax from these deductions is subsequently sent straight to HMRC. This guarantees that foreign-based non-resident landlords complete their UK tax responsibilities.
  • To collect rental income without tax deductions, non-resident landlords can also apply for gross payment status. Nevertheless, this choice necessitates fulfilling particular qualifying requirements and continuing to abide by HMRC rules.

Furthermore, whether or not tax is owed, non-resident landlords are required to file a self-assessment tax return each year. Forms SA109 and SA105, which guarantee accurate reporting of rental income and permitted expenses, must be included in the application.

Advantages and Disadvantages of Non-Resident Landlord Scheme

Let us discuss the key advantages and disadvantages of the non-resident landlord scheme:

Advantages of the Non-Resident Landlord Scheme

  • The NRLS makes sure that rental income is properly taxed and assists non-resident landlords in meeting their tax responsibilities.
  • Non-resident landlords may find the procedure easier if they designate a tax agent to handle tax-related issues.
  • Landlords in the UK and their home country may profit from tax treaties that prevent double taxation.

Disadvantages of the Non-Resident Landlord Scheme

  • Applying for an exemption is advantageous because the required tax deduction may result in larger initial tax payments and possible cash flow problems for landlords.
  • It can be difficult to understand the NRLS and tax requirements, particularly for people who are not familiar with UK tax legislation. In this case, hiring a tax agent would be beneficial.
  • Although maintaining accurate records can take time, it is necessary to adhere to the plan. However, the majority of this load can be eliminated by renting the house through the letting agent.

How to Register for the Non-Resident Landlord Scheme

Non-resident landlords are required to sign up with HMRC for the Non-resident Landlord Scheme. This guarantees that your rental revenue from UK properties is known to HMRC.

Tax Deduction

Under the Non-resident Landlord Scheme, you have two choices for paying your taxes as a non-resident:

  • withholding tax.
  • status of gross payments.

Withholding Tax

Before sending you your rental income, letting agents or tenants are required to deduct tax at the basic rate of 20%. After that, they send this tax to HMRC.

Status of Gross Payments

If your UK tax affairs are up to date or you do not anticipate having a UK tax liability, you may seek to receive rental income without the 20% tax deduction at source. You must fill out and send the relevant application forms to HMRC to apply for gross rental income under the Non-resident Landlord Scheme:

  • NRL1 for individuals.
  • NRL2 for companies.
  • NRL3 for trustees.

Assure Compliance

Landlords must make sure their UK tax affairs are current and free of any prior UK tax liabilities.

Remain Below the Tax level

Landlords should steer clear of exceeding the £12,570 UK tax personal allowance income level.

To obtain gross UK property revenue without agency or tenant tax deductions, landlords must fill out the NRL1 form and complete the requirements. Usually, the landlord’s tax history and present situation are taken into consideration when HMRC gives consent.

Tax Rates for the Scheme

Tax Rates for Non-Resident Landlord Schemes

Non-resident landlords are required to report their rental income by UK income tax regulations under the Non-resident Landlord Scheme. This is a condensed explanation:

The Threshold for Tax Exemption

If no property expenditures are reported, the first £1,000 of rental income is typically tax-free.

Reporting to HMRC

Regardless of claimed costs, rental income above £2,500 must be reported to HMRC. Any income over £9,999 must be disclosed if authorised expenses are claimed.

Agent fees, maintenance charges, legal fees, insurance, cleaning costs, and gardening expenditures are all considered allowable expenses.

Individual Allowance

For the 2024–2025 tax year, the regular personal allowance is £12,570. Accordingly, rental income is exempt from taxation until it surpasses £12,570 throughout the tax year.

Tax Rates for Non-Resident Landlord Schemes

Non-resident landlords are required to report their rental income by UK income tax regulations under the Non-resident Landlord Scheme. This is a condensed explanation:

Rates of Taxes

When a landlord’s income exceeds their allowance, they are subject to the following taxes:

Between £12,570 and £50,270: 20%

between £50,271 and £150,000: 40%

£150,001 or more: 45 percent

Status as a Non-Resident Taxpayer

Only your UK income is subject to taxation if you are considered a non-resident of the UK for tax reasons.

Changes into Letting Agent or Tenant

The new tenant or renting agent will not get a notification from HMRC allowing them to pay rent without deducting tax if they have not been informed of the change. In these situations, a landlord with legal approval should deduct tax from the rental income.

As the renter or letting agent, you must file an annual return and present a certificate attesting to the tax withheld if these conditions are met after March 31 of any given year.

If you have taken taxes out of the landlord’s rental income at any point after April 1st and you receive notice before March 31st, you have two options:

  • Speak with HMRC about recovering any taxes that were withheld for the applicable quarters (noting transactions where applicable).
  • To cover the tax withheld and to avoid making any more deductions during the year, you and the landlord should agree to give a certificate at the end of the year.

If a Non-Resident Landlord Dies?

Any HMRC consent to pay rent without deducting taxes does not apply in the event of the death of a non-resident landlord. After a landlord passes away, you should deduct taxes if you must continue paying the same rent to someone else, unless the new renter is either:

  1. someone who already has an approved notice (such as the landlord’s surviving spouse)
  2. or does not typically reside outside of the UK (such as a UK executor).

The new payees can request permission from HMRC to get their rent without having any taxes deducted.

If any of the following apply, use form NRL3 to obtain UK rental income without deducting taxes:

  1. You are a trustee or executor,
  2. or you typically reside outside of the United Kingdom.

Conclusion

For landlords who own residential properties in the UK but reside outside of it the UK Non-Resident Landlord Scheme offers a crucial framework. Non-resident landlords who understand the key features benefits and challenges of the scheme can maximise their rental income stay in compliance with UK tax regulations and start a successful and legitimate property management business. Non-resident landlords should speak with an experienced property tax advisor to manage the NRLS’s complexities.

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