What Is It and What Should You Know About It?
Non-Resident Landlord Scheme Explained
You may have heard the term Non-Resident Landlord Scheme, or NRLS, and wondered how it impacts you. Depending on each specific situation, this tax on rental income payment scheme can apply to landlords, tenants, and letting agents.
Although, like anything having to do with the state, it may sound complicated, our team at REMAX Star Canning Town – made up of NRLS-registered estate agents, can help you understand everything there is to know about the NRLS and how we can take on all the obligations that may apply to you.
What is a Non-Resident Landlord?
For the purposes of the Non-Resident Landlord scheme, a non-resident landlord is an individual renting out a property in the UK and receiving rental income from it whose usual place of abode is outside the UK. Specifically, the scheme refers to landlords who live outside the UK for more than 6 months every year.
A non-resident landlord may also be a company, a partnership, or a trustee.
For partnerships, each partner is considered a separate landlord as regards their share of the rental income. For properties owned by more than one individual, the NRLS applies to each owner’s rental income share.
Please note that you can be a non-resident landlord under the NRLS and still be considered a UK tax resident for tax purposes.
What is the Non-Resident Landlord Scheme (NRLS)?
The Non-Resident Landlord Scheme (NRLS) refers to a tax on UK rental income that applies to non-resident landlords, their tenant(s), or letting agents.
To put it simply, the Non-Resident Landlord Scheme defines how tax is applied to income obtained from renting a UK property when the property owner lives overseas for more than 6 months out of a year.
To ensure that the due tax is paid, the HM Revenue & Customs (HMRC) imposes the obligation to withhold the tax on the landlord’s UK letting agent or their tenant when they pay more than £100 a week in rent for the property.
For the NRLS, the tax year is considered to run from April 1st to March 31st.
Non-Resident Landlord Obligations
According to the NRLS, you can choose to receive your rental income with deduction at the source (the letting agent or tenant, depending on the case), or gross.
If you want to receive the gross rental income, you will have to report the rental income when you file your Self Assessment tax return and you cannot be late on any tax returns or payments. You will need to fill in and submit the NRL1 form online or by post.
In some cases, choosing to receive the rental income gross may not be to your advantage as you may be subject to paying tax both in the country you reside in and the UK.
If you want the tax to be deducted at the source, you will receive the net rental income, after the withholding tax has been deducted by the letting agent (if one exists) or the tenant (if a letting agent does not exist).
Tenants who pay more than £100 a week in rent to a landlord who lives outside the UK for more than 6 months per year and does not have a letting agent have the obligation under the NRLS to deduct the tax on rental income that the landlord must pay.
The £100 a week threshold applies to each landlord and each tenant. Therefore, in the case of jointly-owned properties or when there is more than one tenant on the lease, you must calculate the tax deduction accordingly.
If the tenant pays any tax under the scheme and does not deduct it from the rent, they have the right to recover this amount from the landlord.
If you are uncertain of your landlord’s situation and want to know whether or not you are required to withhold tax according to the NRLS, make further enquiries with your landlord or the HMRC.
If the NRLS applies to you as a tenant, you are required to contact HMRC and ask to register for the Non-Resident Landlord Scheme. They will ask you for your name and address, the name and address of your landlord, and register your application.
After that, you will have to calculate the tax, file form NRLQ, and pay the tax no later than 30 days as of the end of each quarter, namely at the end of June, September, December, and March. The tax rate is 20% applicable to the amount of rent paid to the landlord.
You will also have to file form NRLY by July 5th each year to HMRC and the landlord, provide the landlord with certificate NRL6, and keep records for four years. Records should include the amount of rent you have paid and the dates and the expenses you have incurred, including copies of invoices or receipts.
Letting Agent Obligations
When tenants pay the landlord’s rental income to a letting agent and the landlord has not requested to receive the gross income, the NRLS requires the letting agent to withhold the due tax.
For the purposes of the NRLS, if you are an estate agent, a solicitor or an accountant, a friend, or a relative and are acting on behalf of a non-resident landlord managing their UK rental business and you receive their rental income or have control over the direction of the income, you are also considered a letting agent.
Each year, letting agents must submit an annual return to the HMRC declaring the amount of rent they have collected on behalf of the landlord. No limit applies to the amount of rent applicable when the tax is withheld by letting agents and the basic rate of the tax is 20% minus deductible expenses.
Deductible expenses can include:
- Accountancy Expenses
- Advertising Costs
- Cost Of Inventories
- Cleaning, Maintenance, Or Gardening Fees
- Council Tax For The Period When The Property Is Vacant
- Property Insurance And Insurance Against Loss Of Rental Income
- Allowable Loan Interest
- Other Legal And Professional Fees
- As Gas, Water And Electricity Costs
- Small Repairs.
Letting agents are required to apply for the NRLS no later than 30 days as of the start of the tenancy by filing an NRL4i form and submit an NRLY form to HMRC and a form NRL6 to the landlord by July 5th. They also must calculate the due tax for each quarter, pay it to HMRC no later than 30 days as of the end of each quarter, and submit the quarterly return (form NRLQ).
Letting agents must also keep clear records of paid rent and correspondence with the landlord, as well as records referring to expenses paid for the landlord for four years.
Like all state affairs, the Non-Resident Landlord Scheme may seem confusing or complicated to landlords, especially since tax laws and regulations are constantly changing.
Our experienced NRLS-registered letting agents are always up to date on all the latest changes and requirements and always ready to help landlords and relieve them of any stress and hassle relating to their UK tax liabilities. To learn more about how we can assist you, do not hesitate to contact us 0207 055 0441.