Who are non-resident landlords?
Non-resident landlords (NRL) are persons:
- who have UK rental income, and
- whose ‘usual place of abode’ is outside the UK.
For these purposes individuals, companies and trustees can be non-resident landlords. For partnerships, each partner is treated as a separate landlord.
An individual will be regarded as having a ‘usual place of abode’ outside the UK if absent from the UK for six months or more. It is therefore possible for an individual to be resident in the UK for tax purposes and to be a non-resident landlord for the purposes of the NRL scheme.
Companies that have their main office or other place of business outside the UK, and companies incorporated outside the UK, normally have a usual place of abode outside the UK.
Trustees have a usual place of abode outside the UK if all the trustees have a usual place of abode outside the UK (following the rules for individuals and companies as outlined above). If one or more of the trustees does not have a usual place of abode outside the UK, the trustees are not a non-resident landlord for the purposes of the scheme.
For jointly owned property (including husband-and-wife cases), each individual is treated as a separate landlord.
It is for the letting agent or tenant to determine the ‘usual place of abode’ of the landlord. If this is in doubt, the letting agent or tenant should get more information from the landlord to satisfy themselves on the point.
How is tax collected?
The default position is that letting agents or tenants of a non-resident landlord must deduct tax from the rental payments to the landlord and pay them over the HMRC.
Agent and tenant obligations
- Deduct basic rate tax from rents paid to the landlord, qualifying expenses can be deducted,
- Submit quarterly returns and pay tax to HMRC
- Submit an annual information return to HMRC
Tenants have the right to deduct any tax they have to pay under the scheme from their rent, or from any other money owing to the non-resident landlord.
Tenants also have the right to recover from the landlord any tax they have to pay under the scheme where they did not deduct it from their rent or other money owing.
Application to receive rental income with no tax deducted
A non-resident landlord who wishes to receive their rental income gross (with no tax deducted by the agent or tenant) can apply to HMRC for gross payment status.
If approved, the rental income will be paid gross; however, it is still liable to UK tax in the normal way and the NRL will be required to file a UK tax return.
Non-resident landlords can apply for approval to receive their UK rental income gross on the basis that:
- their 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 tax year in which the application is made.
Benefits of gross income
- Improved cash-flow and delay of tax payments to normal UK payment dates.
- Can claim tax deductible expenses to reduce liability, its unlikely an agent or tenant will take these into account.
Letting agents and tenants who have to operate the scheme are usually required to submit quarterly and annual returns as described above.
Normal record keeping applies to NRL’s submitting a UK tax return and information to support the return should be retained for 6 years.
HMRC may charge penalties of up to £3,000 where letting agents and tenants submit incorrect quarterly or annual returns or if returns are not submitted when required.
Interaction with overseas taxes
If you are required to pay tax on the same income in your country of residence you may be entitled to make a claim for double tax relief to reduce your local tax liability.
Frequently Asked Questions
Yes if the property is situated in the UK it will be subject to capital gains tax irrespective of your residency status.
From 2015 to 2016, non-residents who dispose of a UK residential property are liable to Capital Gains Tax and, in most cases, can claim the Annual Exempt amount (AEA) in the same way as UK residents. This is not available to companies who dispose of a UK residential property, as they may be able to claim other allowances.
Most countries operate rules in relation to double taxation and will allow a deduction for overseas tax suffered so that you do not pay tax twice. A double tax agreement may exist between the countries which sets out the rules on taxing rights and how double tax relief is given.
You can deduct costs of buying, selling or improving your property from your capital gain.
- estate agents’ and solicitors’ fees
- costs of improvement works, for example for an extension or major building work (normal maintenance costs, such as decorating, do not count)
- Stamp duty previously paid on acquisition
- Capital expenses incurred on the property that have not been deducted for income tax purposes.