Landlords who live in the UK and rent property to tenants must make sure they and their tenants, as well as the letting agent and tenant finders, are enrolled in the Non-Resident Landlord Scheme.
What’s the Non-Resident Landlord Scheme?
This scheme requires that letting agents, tenants, and anyone who finds tenants for non-resident landlords pay any rent due to tax unless HMRC tells them otherwise in writing. You could be fined if you fail to comply with this requirement.
HMRC can find it difficult to pursue individuals who are not in the UK. Therefore, UK law attempts to collect rental income tax before it is paid to an overseas landlord. This is done by mandating that the UK let the agent withholds tax on rental income before it goes to the overseas landlord. If the rent paid to an overseas landlord exceeds PS100 per week, there is no UK agent. The tenant must withhold tax.
What’s a Non-Resident Landlord (or )?
If property investors spend more than six consecutive months outside of the UK, they are considered Non-Resident Tenants.
Non-Resident Landlords are not subject to the Statutory Residence Test and other tax definitions. Instead, HM Revenue & Customs will look at the landlord’s ‘usual location of abode’. It is the place where a landlord can stay for longer than six months. However, it does not have to be their main or permanent residence.
The scheme allows landlords to have UK tax residency but their “usual place of residence” in another country.
How can I make sure I’m registered as a non-resident landlord?
SAIL assists tenants and lets agents in completing the HMRC rent report. This can be done on an NRLY form or an NRL6 form for the UK letting agents and tenants who have deducted tax from rental income of landlords based outside the UK. For HMRC audit purposes, the landlord must receive the NRL6 certificate and keep a copy. Each year, you must submit a report by 5 July.
What happens if my tenant or agent doesn’t want Non-resident Landlord Tax UK deducted directly from my rents by my agent?
Non-resident landlords will not be affected by this exemption, however, you may still be eligible to apply.
Non-Resident Landlords can receive rents from tenants and let agents without tax deductions. They must complete and file the NRL1i form. HMRC may reject an application from a non-resident landlord if it isn’t filed on time.
HMRC will need to confirm
- How long will a landlord live in the UK?
- Personal information such as the National Insurance number
- contact details
- Information about properties that are rented in the UK
How can tenants calculate the tax they should withhold and pay?
Add the rent for the three months and any money that you have paid to the landlord to calculate the tax.
To calculate the net rent, subtract any deductible expenses that you have incurred in the quarter. Multiply the net rental by the basic income tax rate.
HMRC might check that you have paid the correct amount.
- Add any rent that was paid or any rent that the landlord requested to be paid to another person during the three-month period.
- All expenses incurred by the landlord (e.g. repairs) should be refunded.
- Multiply the remaining figure by the basic tax rate – 20% for 2020-2 tax years.
Making a payment
Payment must be made within 30 days after the end of each quarter. This includes 30 June, 30 September, and 31 December.