Nonresident landlords are people who live in the UK and have rented property.
This is subject to strict tax rules, both for tenants and landlords. In 1996, the UK’s mandatory Non-Resident Landlord Scheme (NRLS), was created to ensure that rent income is exempt from UK income tax.
A breach of rules could result in severe fines. It’s crucial that everyone involved fully understands the requirements.
This comprehensive guide will explain the scheme and help you to identify who it applies to, as well as what your responsibilities are.
Who Can Be Considered As Non-Resident Landlord?
Nonresident landlords are people who live in the UK but rent or own properties elsewhere.
If HM Revenue and Customs, (HMRC), decides that a landlord has a “usual home or abode in another country,” even if they have UK tax residency they are considered a non-resident landlord.
This also includes
- Persons posted abroad to serve in the armed forces, Crown servants like diplomats or ambassadors.
- Trustees and companies with their principal office or registered office outside of the UK.
HMRC does not accept PO Box addresses or “care of” addresses as a place where one is most likely to live.
If the property is jointly owned, one owner will need to be a UK resident while the other will need to be a non-resident landlord. The income tax due to this property will be divided according to each landlord’s share.
What Is The Non-Resident Landlord Scheme (NRL)?
The HMRC Non-Resident Landlord Program allows landlords the ability to tax rental income earned in the UK. It runs from 1 April to 31 March.
The UK government taxes the income of Non resident landlords tax UK , even though they reside overseas.
HMRC could have problems pursuing taxes because of foreign residents. Tenants and letting agents are legally required to withhold tax until rent has been paid by landlords under the NRLS.
HMRC will then be notified, and the tax withheld must be paid every three months.
Tax withheld by an overseas landlord from a tenant or letting agent can be used to reduce their UK tax liability.
Nonresident landlords may register with NRLS to request their rent to be paid fully and then to pay tax via their tax return.
What Are The Responsibilities Of Non-Resident Landlords Under NRLS?
Nonresident landlords are eligible to receive rental income from tenants free of tax if they register with NRLS.
They can apply if:
- The UK tax affairs of their taxpayers are up-to-date;
- They have not been subject to any tax obligation by the UK.
- They don’t anticipate any UK taxes liabilities in the same tax year.
Each shareholder must complete their form to receive a gross rental income.
Nonresident businesses receiving rental income from the UK must complete NRL2 and trusts need to form NRL3
Once they have been registered, landlords who are not residents of the UK must pay their tax obligations. They are required to report their income on UK property pages SA105, as part of their self-assessment tax returns.
Landlords don’t have to register with NRLS. The tenant, letting agent or tenant finder can deduct any tax before paying rent to the landlord.
What Tax Consequences Do Non-Resident Landlords Have?
Nonresident landlords must be aware that income earned from UK-based rental properties will result in them having to pay tax.
If you are a tax resident in another country, you may be subject to taxes.
You might be eligible for credit for UK tax that you have paid; in addition to the tax you paid in your home nation. It all depends on which tax rules are in place in the country in question.
A capital gains tax may apply to you if you’re a resident in an overseas country.