The Non-Resident Landlord Scheme (NRLS) is a tax scheme designed for individuals and entities who rent out property in the UK but live abroad for more than six months each year. This guide provides essential information for landlords on how the NRLS works and its impact on UK property management. Whether you’re a landlord, tenant, or letting agent, understanding this scheme is crucial to ensure compliance and avoid unnecessary complications.
What is a Non-Resident Landlord?
A non-resident landlord rents out a property in the UK but resides outside the country for more than six months each year. The NRLS applies to these landlords, as well as to companies, partnerships, or trustees renting out property in the UK. It’s important to note that non-resident landlords may still be considered UK tax residents for certain tax purposes.
The NRLS ensures that tax is withheld from rental income at the source. This means that if you are a non-resident landlord, your tenant or letting agent will be responsible for deducting tax from the rental income they pay you.
What is the Non-Resident Landlord Scheme (NRLS)?
The Non-Resident Landlord Scheme (NRLS) helps the UK government ensure that non-resident landlords pay the tax they owe on rental income from UK properties. If a landlord resides outside the UK for more than six months each year, the NRLS applies.
In practice, the NRLS requires the person who collects the rent – whether the tenant or a letting agent – to withhold tax from the rental payments. This tax is then paid directly to HMRC, the UK’s tax authority. For rental payments over £100 a week, tax must be deducted at a standard rate of 20%.
Non-Resident Landlord Obligations
Non-resident landlords have specific responsibilities under the NRLS. Depending on the option they choose, landlords can either receive rental income after tax has been withheld or opt to receive it gross (before tax).
Receiving rental income with tax deductions
If you choose this option, the letting agent or tenant will deduct tax at source before passing the net rental income to you.
Receiving rental income gross
If you prefer to receive your income without deductions, you must report your rental income and pay tax via a Self-Assessment tax return. This option can be more beneficial, but it requires diligent tax management to ensure that payments are made on time.
Tenant Obligations Under the NRLS
Tenants also play a critical role in ensuring compliance with the Non-Resident Landlord Scheme. If the rent paid exceeds £100 per week, tenants must ensure that the appropriate tax is withheld and paid to HMRC.
Here’s how it works:
- Tenants must calculate the tax based on the rent paid. They are obligated to file form NRLQ with HMRC and make the tax payment within 30 days after each quarter.
- If the tenant fails to withhold and pay the tax, they must recover the amount from the non-resident landlord.
Letting Agent Obligations
Letting agents, act on behalf of non-resident landlords, also have important responsibilities under the NRLS. They must:
- Withhold the required tax from rental payments.
- Submit a quarterly return to HMRC (form NRLQ) and make payments within the required timeframe.
- File an annual return to HMRC reporting the total rent collected on behalf of the non-resident landlord.
Letting agents must also ensure that any tax deductions are documented and maintained for future reference.
How the NRLS Affects UK Property Owners
For landlords with properties in the UK, the Non-Resident Landlord Scheme directly impacts how rental income is taxed. Whether you are a first-time non-resident landlord or have years of experience, it’s important to be aware of the following implications:
- Tax Withholding: The NRLS requires landlords to have tax deducted at the source, either by the tenant or letting agent. This ensures compliance and timely payment of taxes.
- Self-Assessment: If you choose to receive your rental income gross, you are still responsible for reporting your rental income via a Self-Assessment tax return.
- International Tax Considerations: Depending on where you live, you may also have tax obligations in your country of residence. It is important to seek advice on double taxation agreements and potential tax reliefs to avoid being taxed twice.
Important Forms in the NRLS Process
There are several key forms involved in the Non-Resident Landlord Scheme:
- NRL1: Non-resident landlords use this form to apply to receive rental income gross.
- NRL4: Letting agents must use this form when they begin letting a property on behalf of a non-resident landlord.
- NRLQ: This form is used by both tenants and letting agents to report rental payments and tax withheld.
- NRLY: Letting agents must file this annual form with HMRC to report the total rent collected during the year.
- NRL6: This form provides a certificate for the landlord to confirm the withholding tax.
Conclusion: Understanding the NRLS
The Non-Resident Landlord Scheme (NRLS) is essential for non-resident landlords owning UK property. By understanding and adhering to the scheme, landlords can ensure tax compliance and avoid penalties. Whether you opt for tax deductions at the source or gross income payments, working with an NRLS-registered estate agent can simplify the process. At Real Estate Agents London, we are here to help guide you through the NRLS and ensure your rental business runs smoothly. Contact us today at 0207 055 0441 for expert assistance.
FAQs About the Non-Resident Landlord Scheme
A non-resident landlord is an individual whose primary place of residence is outside the UK for more than 6 months a year. The scheme can also apply to companies, partnerships, or trustees who own UK property but reside overseas for the majority of the year. Non-resident landlords can still be considered UK tax residents in some cases, so it’s essential to verify your status with HMRC.
To register for the NRLS, you need to fill out an NRL1 form with HMRC, either online or by post. If you want your rental income to be paid gross, you must ensure you stay up-to-date with tax returns. If you prefer to have the tax deducted at the source, your letting agent or tenant will withhold the relevant amount.
Yes, tenants who pay more than £100 per week in rent to a non-resident landlord have the obligation to withhold the tax due under the NRLS. This applies if no letting agent is handling the rental income. Tenants must deduct the tax and pay it to HMRC, submitting form NRLQ quarterly.
The tax rate under the NRLS is set at 20% of the rental income paid to the landlord. The tax is withheld by the tenant or letting agent and paid to HMRC. If you, as a non-resident landlord, choose to receive your rental income gross, you’ll need to report it on your Self Assessment tax return.
