Non-Resident Landlord Scheme is HMRC's system for collecting tax on UK rental income from overseas landlords. The fundamental principle is UK property generates income that's taxable in the UK, regardless of where you live. Under the scheme, tax is deducted at source. Your letting agent or tenant deducts basic rate tax from your rental income and pays it directly to HMRC before you receive the rent.
This guide explains who the scheme applies to, when tax must be deducted, how to apply to receive rent without deduction, and the compliance rules and penalties that apply.
Who is Treated as a Non-Resident Landlord?
The scheme applies based on your usual place of abode, not your technical tax residence status. These are different concepts, and the distinction matters.
Your usual place of abode simply means where you normally live. You're treated as a non-resident landlord if you have UK rental income and usually live outside the UK specifically, if you're abroad for a period that exceeds, or is expected to exceed, six months.
If you're living outside the UK only temporarily (six months or less), you're not regarded as having your usual place of abode outside the UK, so the scheme doesn't apply.
This can create situations where the scheme applies differently from your formal residence status. For example, you might spend enough days in the UK during a tax year to count as resident under the statutory residence test yet still fall within the Non-Resident Landlord Scheme because your usual home is abroad.
How Does the Non-Resident Landlord Scheme Apply to Different Types of Landlords?
The scheme covers individuals, companies, and trustees. Each type has slightly different rules for determining usual place of abode.
For Individuals:
It's straightforward: where do you usually live? If that's outside the UK for more than six months, the scheme applies.
For companies:
The test is whether the company has its main office or place of business outside the UK, or whether it was incorporated abroad. However, companies that are treated as UK resident for corporation tax purposes don't have a usual place of abode outside the UK for this scheme, even if they were incorporated elsewhere. Similarly, if a non-resident company has a UK branch that's within the charge to corporation tax, that branch has a usual place of abode in the UK.
For Trustees:
The position is assessed collectively. The trustees as a group have a usual place of abode outside the UK only if every single trustee has their usual place of abode outside the UK. If even one trustee is UK-based, the trustees as a group don't fall within the scheme. However, UK property income arising to trustees remains taxable in the UK regardless, so they'll need to register for self-assessment.
For Partnerships:
Each partner is treated as a separate landlord. Their usual place of abode is considered individually based on whether they're an individual, company, or other entity.
For Jointly Owned Property:
Each owner is treated separately. Joint owners may have different places of abode, so whether the scheme applies needs to be assessed individually for each co-owner. It's entirely possible for one joint owner to be within the scheme while another isn't.
The same individual assessment applies to investors in transparent funds. Each investor entitled to receive UK property income is a landlord in respect of their share and may be a non-resident landlord if their usual place of abode is outside the UK. A fund can have some investors who are non-resident landlords and others who aren't.
How is Tax Collected Under the Non-Resident Landlord Scheme?
The scheme operates through a withholding system. Unless HMRC has given specific approval for rent to be paid without deduction, either your letting agent or your tenant must deduct basic rate income tax from your rental income and pay it directly to HMRC.
The person responsible for making these deductions is called your non-resident landlord's representative or, in the regulations, a "prescribed person." This will be either your letting agent (if you have one) or your tenant (if they pay you directly and you don't have an agent managing the property).
The Deduction Process
When deductions are required, they're calculated on a quarterly basis. The tax year for the scheme runs from 1 April to 31 March, divided into quarters ending on 30 June, 30 September, 31 December, and 31 March.
Tax must be paid to HMRC within 30 days of each quarter end. So, tax for the quarter ending 30 June must reach HMRC by 30 July, and so on. This payment is made using a quarterly return form called NRLQ.
If there's no tax liability in a particular quarter, your agent or tenant doesn't need to complete a quarterly return for that period. However, there's an exception: if HMRC has specifically issued a notice requiring a return, one must be submitted even if no tax is due.
There's also an annual reporting requirement. By 5 July each year, letting agents and tenants must complete an annual information return on form NRLY. The only exception is for tenants who have been authorised to pay their landlord without deducting tax. They don't need to file the annual return. Letting agents must complete annual returns even if they've been authorised to pay all their non-resident landlords without deductions.
What You Can Offset As a Landlord?
The tax deducted under the scheme isn't necessarily your final tax bill. You can set off the tax that's been deducted from your UK rental income against your overall UK tax liability when you complete your self-assessment tax return. You can also claim repayment of any excess tax deducted from their UK rental income.
This mismatch happens because the scheme's calculation rules differ from the rules for working out your actual tax liability. The scheme is a collection mechanism, not a final assessment.
What Responsibilities Do Letting Agents Have?
A letting agent for these purposes means someone who has a usual place of abode in the UK, acts for you in running your UK property business, and either has the power to receive your rental income or controls how that income is directed.
Importantly, a "letting agent" doesn't have to be a professional property management company. The term covers accountants, solicitors, or even friends and relatives who manage your property for you, as long as they meet the criteria above.
Letting agents operating the scheme has these obligations:
Register with HMRC Deduct and account for tax quarterly Complete an annual information return Provide you with a certificate of tax deducted each year Keep adequate records showing they've complied with the scheme |
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Before calculating tax, agents can deduct certain expenses from the rental income. These allowable expenses include items like their own letting agent fees, the cost of advertising for new tenants, gardening and maintenance costs, and similar property management expenses. The tax is then calculated on the net amount after these deductions.
Agents have specific rights to protect themselves. They can deduct any tax they've had to pay under the scheme from your rent or from any other money they owe you. They also have the right to recover from you any tax they've had to pay if they didn't deduct it from rent or other funds at the time. Tenants have these same deduction and recovery rights when they're required to operate the scheme.
Offshore Transparent Fund
In cases involving offshore transparent funds, each investor entitled to receive UK property income is treated as a landlord and may be a non-resident landlord if they live abroad. HMRC can give notice to the fund's operator or administrator requiring them to act as the non-resident landlord's representative for income payable to investors. This ensures the correct amount of tax is withheld, including proper deduction of expenses.
When Must Tenants Deduct Tax From Rent?
Tenants only become involved in the scheme under specific circumstances. If rent is paid to you via a UK letting agent, it's the agent, not the tenant who must operate the scheme.
Tenants must operate the scheme only if they pay rent directly to you (or to someone who isn't acting as a letting agent) and the rent exceeds £100 per week. This £100 threshold is a de minimis limit designed to keep small-scale tenancies out of the scheme's administrative burden.
However, HMRC can require tenants to operate the scheme even when rent is below £100 per week. This typically happens when you have several tenants and your total rental income exceeds £100 weekly, even though each individual tenant pays less.
When tenants are required to operate the scheme, these are there obligations:
Notify HMRC Account for tax quarterly Provide you with an certificate of tax liability each year Complete an annual information return where appropriate Keep sufficient records |
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Who Decides If the Scheme Applies?
It's the responsibility of your letting agent or tenant to determine whether you have your usual place of abode outside the UK. If there's doubt, they should request more information from you to establish the position.
PO Box addresses and "care of" addresses shouldn't be relied upon alone as evidence that the scheme doesn't apply. But if agents or tenants have no reason to believe you live abroad, they're not required to make special enquiries, and wouldn't need to operate the scheme.
How Does a Landlord Apply to Receive Rent Without Deduction?
You can apply to HMRC for approval to receive your rental income without tax being deducted. This is called receiving rent gross. If approved, it means your letting agent or tenant pays you the full rent, and you deal with your UK tax liability through self-assessment at the end of the year.
Getting approval doesn't exempt yourUK rental income from tax. It simply changes the collection mechanism from withholding to self-assessment.
You can apply for approval to receive rent in gross, if any of these conditions apply:
Your UK tax affairs are fully up to date You haven't had any UK tax obligations before making the application You don't expect to be liable to UK income tax for the year in which you're applying You're not liable to UK tax because you have sovereign immunity (typically foreign heads of state, governments, or government departments) |
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You can apply at any time, including before you leave the UK or before your letting arrangement even begins.
The Application Forms You Use Depends On Your Type:
Form NRL1 for individuals
Form NRL2 for companies
Form NRL3 for trustees
A letter if you have sovereign immunity status
Non-resident landlords must send their applications to HMRC at: Charities, Savings and International 1, HM Revenue and Customs, BX9 1AU.
HMRC's Decision
HMRC may refuse your application or withdraw approval previously granted if they're not satisfied that the information you've provided is correct, or if they're not satisfied that you'll comply with your UK tax obligations. They can also withdraw approval if you fail to supply information they've requested.
How Does HMRC Authorisation Work?
When HMRC approves your application to receive rent gross, they notify both you and your letting agent or tenant, authorising them to pay rent without deduction.
The approval is typically backdated to the start of the quarter in which HMRC received your application. For example, if you submit your application on 12 November, HMRC would normally make the authorisation effective from 1 October (the start of that quarter).
What Happens If Approval is Refused or Withdrawn?
If HMRC refuses your application to receive rent gross, or if they withdraw approval they previously granted, you have the right to appeal.
Any appeal must be made in writing to HMRC within 90 days of the date of their notice. If you and HMRC can't reach agreement, your appeal will be heard by the First-tier Tax Tribunal.
When HMRC withdraws approval, they'll issue a notice explaining the reason for withdrawal and the date from which it takes effect. They'll also notify your letting agent or tenant of when they should start deducting tax from your rental income again.
What About Compliance and Penalties?
HMRC has various powers to ensure the scheme operates properly and can impose penalties when the rules aren't followed.
What Happens If I Go Abroad Without Arranging Tax Deduction?
If you go abroad and rent out your UK property without having an agent or tenant operating the scheme, HMRC will typically set up a self-assessment record for you and issue the appropriate application form, one for each co-owner in the case of jointly owned property. Once HMRC approves your application, they'll note this on your self-assessment record and ensure property income pages are included with your tax returns.
If HMRC discovers a letting agent or tenant who appears to be failing to operate the scheme when required, the case is referred to HMRC's specialist team for investigation.
Can HMRC Issue Tax Assessments Under the Scheme?
Yes. Under the scheme, tax is normally payable quarterly by letting agents and tenants without a formal assessment. However, HMRC can decide to raise an assessment in certain circumstances.
When HMRC raises an assessment, interest is charged on the tax from 30 days after the end of the relevant quarter, regardless of when the assessment was actually made.
What Penalties Apply for Non-Compliance?
HMRC can charge penalties in two main situations:
Conclusion
The Non-Resident Landlord Scheme ensures UK tax is collected on UK rental income, regardless of where you live. The scheme applies based on your usual place of abode, generally anyone living abroad for more than six months. Unless you have HMRC approval to receive rent gross, tax will be deducted at source by your letting agent or tenant, who must then register, report, and pay it to HMRC.
You can apply to receive rent without deduction if your tax affairs are in order, with approval typically backdated to when you applied. If refused or withdrawn, you have the right to appeal. Understanding your status and obligations under the scheme helps ensure your UK rental income is taxed correctly while avoiding unnecessary complications or penalties.
