Many overseas investors realize the undeniable appeal of investing in UK real estate. However, it is obvious that it can be a daunting challenge to navigate through the tax landscape of the UK. To address this challenge, the UK Government designed Non-Resident Landlord Scheme (NRLS).
This program ensures that tax is appropriately paid on rental income that you earn from your UK properties as a non-resident. If you are a seasoned property investor in the UK’s real estate market or a first-time landlord, you need to understand what the NRLS system will provide.
Join us discovering the complexities and how to manage your UK rental property with confidence.
Overview of Non-resident Landlord Scheme
The non-resident landlord scheme, the NRLS, is used to tax those who own a usual place of abode outside the UK. The tax type is the UK rental income tax. The obligations imposed by the NRLS are for the tenant or the letting agent, in case there is one. When it comes to the timeline for the purposes of the NRLS, the tax year is set from 1 April to 31 March.
If you are wondering about this topic, probably you live overseas but you receive income from letting out your property in the UK. So it is important for you to know that this income type is generally taxable in the UK. It is like any other UK-sourced incomes. It does not matter if you are resident or non-resident in the UK for the purposes. The place where your income is physically paid is not a factor as well.
The UK law under the NRLS aims to collect tax on the rental income before it is paid to the landlord who is abroad, not in the UK. So, here is an imposed obligation on the UK letting agent to withhold tax on the rental income before it gets paid to the overseas landlord. If you have no UK letting agent and if you are the tenant yourself, you must withhold tax personally when the rent you pay to the overseas landlord is more than £100 a week.
If you are an overseas landlord, you can get a deduction to your UK tax liability because any tax withheld by the letting agent or tenant is available as a deduction. The NRLS does not have any effect on whether your UK property income is taxable or not.
As one of the non-resident landlords, you will generally be required to file a self-assessment tax return. It is necessary even if there is no tax to pay.
Furthermore, non-resident landlords can apply to receive the rental income without any tax deductions. Let’s keep exploring the topic further in this article where we explain the conditions.
Who are Non-resident Landlords?
Non-resident landlord basically means that;
- You have UK rental income
- You have a usual place of abode outside the UK
Even if you are considered UK residents for general tax purposes, you can still be a non-resident-landlord. You can be subject to NRLS even if you meet the UK’s residency criteria. So, HMRC (His Majesty’s Revenue & Customs) generally considers an absence of six months or more from the UK to describe having a usual place of abode elsewhere.
It is important to know that not only individuals but companies and trustees can also be non-resident landlords in the UK.
Filing Tax Returns and Avoiding Double Taxation
While the NRLS simplifies tax collection, it does not absolve you from filing an annual self-assessment tax return. This return allows you to declare your full rental income, claim allowable deductions for expenses like repairs and maintenance, and potentially receive a tax refund if you have overpaid.
One common concern for non-resident landlords is the risk of double taxation – being taxed on the same income in both the UK and their home country. Fortunately, the UK has established double tax treaties with numerous countries to mitigate this issue. These treaties outline which country has the primary right to tax certain types of income and often provide mechanisms for tax credits or deductions to avoid double taxation.
What are Landlord Obligations in the UK?
Initially, the NRLS does not specifically impose any obligation upon the non-resident landlord. However, if you register to receive your rental income paid without deduction of tax at source by the letting agent or tenant, then you are imposed obligations.
If you have UK property income, then you usually have a separate obligation to file a UK self-assessment tax return. You, in this case, should deduct any tax paid under the NRLS from your UK tax liability.
How to Apply to Receive Rental Income Gross
See the eligibility criteria, benefits, and how to apply to receive rental income gross below.
Eligibility
- Up-to-date UK tax affairs
- Not having any UK tax obligations
- Not expecting to owe UK tax for the year you apply (for example, your income falls within your UK personal allowance).
Benefits
- Receiving your rental income without tax deductions by letting agent or tenant
- Reporting income and expenses on your UK self-assessment tax return
- Calculating UK tax liability with no NRLS deductions
How to Apply
You can apply online to receive rental income gross or by post using the NRLS form. Each joint owner is expected to apply separately.
Registering to receive rental income gross does not exempt income from UK tax. So, you still become responsible for paying for it yourself. Furthermore, you need to check the tax regulations in your country of residence since you may be required to pay taxes on worldwide income. Also, it will help to explore double tax relief options if you are liable for tax in the UK and your country of residence.
What are Tenant Obligations?
The non-resident landlord scheme (NRLS) imposes certain responsibilities for tenants as well. Tenants may need to handle tax deductions for the landlord if they live outside the UK, and tenants need to pay over £100 per week in rent. The tax authorities, HMRC in this case, might also ask tenants to do this specifically.
Tenants are allowed to deduct this tax from the rent or any other money they owe the landlord. If the payment is already made for the tax but the deduction did not happen, tenants can get it back from the landlord. But if HMRC has informed tenants that they don’t need to do this, then they will be off the hook.
How Can You Operate NRLS as a Tenant?
Tenants need to register with HMRC by writing to them in case they are operating the NRLS as tenants. This makes it necessary as tenants should give their own name and address, that of their landlord, stating that they aim to register for the non-resident landlord scheme (NRLS).
When There is More Than One Landlord
If a property has multiple owners, it means that each considered a separate landlord. The £100 weekly rent threshold for tax deduction applies to each landlord individually. For instance, if the weekly rent is £150, splitting equally between two non-resident landlords, each of them receives £75, falling below the threshold. So this process helps eliminating the need for tax deductions or an annual return.
However, if multiple non-resident landlords each receive over £100 per week, you must deduct tax from each unless HMRC authorizes it. HMRC must specifically authorize you to pay each landlord without tax deduction to avoid tax deductions and annual returns.
Managing a UK Property on Behalf of Your Relative(s)
When managing a UK property for a relative residing overseas, you might be considered a letting agent if:
- You reside in the UK: Your usual place of abode is within the United Kingdom.
- You act on behalf of the non-resident landlord: You actively manage or administer the rental business related to the UK property owned by your relative.
- You handle rental income: You have the authority to receive or control the direction of the income generated from the rental property.
- You are not an “excluded person”: Your involvement is not limited to providing legal advice or legal services concerning the property.
If you meet all these criteria, you will be subject to the full obligations under the Non-Resident Landlord Scheme (NRLS). This entails registering with HMRC, submitting quarterly tax accounting reports, filing annual returns, and providing certificates to the landlord.
Key differences for letting agents compared to tenants:
- Quarterly returns are mandatory: You must submit quarterly payments from NRLQ, even if no tax is due unless you receive a notice exempting you from this requirement.
- Annual returns are always required: Even if HMRC authorizes you to pay rent without deducting tax at source (when the landlord requests to receive gross rent), you still need to file an annual return.
- No exemption for low rent: Unlike tenants, letting agents must operate the NRLS regardless of the rent amount, even if it’s below £100 per week.
Remember that acting as a letting agent for a relative’s property involves additional responsibilities under the NRLS compared to being a tenant. Be sure to fulfill all your obligations to comply with the scheme’s regulations.
In Conclusion
The UK’s Non-Resident Landlord Scheme may seem complex at first glance. However, through comprehensive understanding, it is possible to manage your UK rental property and reap the rewards of your investment.
Knowing the scheme’s requirements explained above might help you as a non-resident landlord in the UK.
