HMRC Non-Resident Landlord Scheme
Are you an overseas investor looking to invest in property in the UK? Are you an expat moving or already moved abroad but looking to keep and rent out your UK property? If you answer to either of these questions is yes, then you will fall under the HMRC’s Non-Resident Landlord Scheme.
The non-resident landlord scheme was devised by HMRC to increase tax collection from overseas landlords. It aims to achieve this objective by placing the responsibility for tax collection on the tenant or letting agent.
What is the definition of a Non-Resident Landlord?
For the purpose of this rule an overseas landlord is deemed to be someone who is lives abroad for more than 6 months in a year. 6 months is the time-frame used to determine usual place of abode.
The scheme also applies to companies. A company with its main place of business outside the UK and not incorporated in the UK should normally be taxed under the scheme. Companies who are resident in the UK for tax purposes are generally deemed to be outside the scheme regardless of incorporation. Get in touch if you need to incorporate a UK Ltd Company.
Another question people ask is about jointly owned properties. In this situation shared owners are assessed for NRL scheme separately meaning some can be taxed through NRL whilst others will not.
Implications for Non-Resident Landlords
This does not put an additional burden on the landlord. Assuming they meet self-assessment criteria they will still be expected to file a personal tax return in line with self-assessment filling deadlines. However, there will be a cash-flow issue as tax should be deducted by the tenant or estate agent at source.
Any refunds you are due for income tax will be taken care of as part your self-assessment return.
It is worth noting that as an overseas landlord you do not get a tax-free allowance unless:
- You’re a citizen of the EEA
- You have worked for the British government during the year
- You might get a tax-free allowance if it is included in the double taxation agreement between the UK and the country you reside
Exemptions are available.
Non-resident landlords can apply to the PTI to receive rental income gross. They can apply on the condition that:
- UK tax affairs are up to date; or
- They have never had any UK tax obligations; or
- They do not expect to be liable to UK tax for the year the application is made
Implications for letting agents
The main impact for letting agents is that they are required to collect tax from non-resident landlords and then pay it across to the HMRC.
- Firstly, you must register with the Personal Tax International Service at HMRC. You are expected to do this within 30 days of when they are first required to operate the scheme.
- Calculate tax for NRLs and submit a quarterly return along with payment to the HMRC. Tax is required to be paid within 30 days of the quarter end. Tax due to be paid is at the basic rate and is due to be paid on rental income less deductible expenses. If deductible expenses are more than income they are allowed to carry back against prior periods and if applicable apply for refunds
- Submit an annual return. This must be completed up to 31st March and is due to be submitted to HMRC by 5 July
In the absence of an estate agent, tenants paying over £100 per week to a non-resident landlord are obliged to register with PTI and begin deducting tax from rent paid to the landlord.
If a letting agent is unsure about the landlord’s usual place of abode, they should ask for more information to ascertain if they need to apply the NRLS rules. If they have no reason to believe that the landlord is a NRL they do are not expected to operate the scheme.