Understanding the Non-resident Landlord Scheme: A Guide for Overseas Property Owners

Whether you’re an expat renting out your former UK home for passive income, a foreign investor, or a limited company with multiple properties, the UK’s Non-resident Landlord Scheme ensures that you comply with tax requirements on rental income from UK properties.

Under HMRC’s Non-resident Landlord Scheme, non-tax residents must meet British tax obligations on income generated from UK properties, regardless of their tax residency elsewhere.

Our guidance on the Non-resident Landlord Scheme explains who qualifies as a Non-resident landlord, outlines your tax obligations, and illustrates how your tax residency status may affect you.

What is the Non-resident Landlord Scheme in The UK?

The Non-resident Landlord Scheme (NRLS) is a tax regulation implemented by HM Revenue and Customs (HMRC) in the United Kingdom.

It is designed to ensure that non-resident landlords who own and rent out property in the UK pay the appropriate tax on their rental income.

The NRLS applies to landlords who reside outside of the UK for more than six months in a tax year but receive rental income from property in the UK.

This means that even if a landlord maintains a property or other ties within the UK, they are classified as a non-resident if their primary residence is overseas for more than half of the tax year.

Under the NRLS, non-resident landlords are legally obligated to pay tax on rental income from UK properties, regardless of their tax residency status in another country.

This is a significant requirement that all non-resident landlords should be aware of to avoid potential tax issues.

There are two options available for tax payment:

• In most cases where the property earns over £100 per week, letting agents or tenants must deduct tax from the rental income before paying the landlord. These deductions are then remitted directly to HMRC as a withholding tax. This ensures that non-resident landlords living overseas fulfil their UK tax obligations.
• Alternatively, non-resident landlords can apply for gross payment status, which allows them to receive rental income without tax deductions. However, this option requires meeting specific eligibility criteria and maintaining compliance with HMRC regulations.

Additionally, non-resident landlords must submit a Self Assessment tax return annually, regardless of whether tax is due.

The submission must include forms SA109 and SA105, ensuring accurate reporting of rental income and allowable expenses.

Who Is Classified as a Non-resident Landlord

HMRC considers several key factors to determine if you qualify as a non-resident landlord under the Non-resident Landlord Scheme.

Here are the main criteria used to classify a non-resident landlord:

• Six-month rule: You are considered a non-resident landlord if you spend more than six months (183 days) outside the UK within a tax year.
• Usual place of abode: Your primary residence, or “usual place of abode,” must be outside the UK to qualify as a non-resident landlord. This means that if your main home is overseas, and you reside there for more than half of the tax year, you are classified as a non-resident.
• Your residence status: The Statutory Residence Test (SRT) determines your residency status for tax purposes. Passing the SRT as a non-resident is crucial for the Non-resident Landlord Scheme to apply. However, it’s important to understand that you may be classed as a non-resident landlord and a UK tax resident.

Importance of Understanding Your Tax Obligations

If you rent out a property in the UK while residing abroad for a considerable period, you should make sure you understand your tax responsibilities and determine if you qualify for the NRLS even if you are classed as a UK tax resident .

Given the potential complexities of tax residency and the NRLS, seeking advice from a qualified cross-border tax advisory, like AHR Group, is recommended. They can provide clarity on your tax status, obligations, and the implications of being classified as both a non-resident landlord and a UK tax resident.

Tax Treaties

Double taxation agreements (DTAs) between the UK and other countries can impact the taxation of rental income for non-resident landlords.

These agreements aim to prevent double taxation by allocating taxing rights between the countries involved.

Depending on the specific provisions of the DTA, you may be entitled to tax relief or credits in your country of tax residence for any taxes paid in the UK on your rental income, which can reduce your overall tax liability.

Due to the complexities of understanding your tax residency for the Non-resident Landlord Scheme, AHR Group can provide expert guidance to help you navigate these intricacies and optimise your tax position.

Tax Obligations for Non-resident Landlords

As a non-resident landlord with rental property in the UK, you have specific tax obligations that you must fulfil to comply with HMRC regulations. Here are the key tax obligations you need to be aware of:

Registering with the Non-resident Landlord Scheme

Non-resident landlords must register for the Non-resident Landlord Scheme with HMRC. This ensures that HMRC is aware of your rental income from UK properties.

Tax Deduction

There are two options for you to pay your tax as a non-resident under the Non-resident Landlord Scheme:

• Withholding tax.
• Gross payment status.

Withholding Tax

Letting agents or tenants must deduct tax at the base rate of 20% from your rental income before paying it to you. They then remit this tax to HMRC.

Gross payment status

You can apply to receive rental income without the 20% tax deduction at source if your UK tax affairs are up-to-date or you do not expect to have a UK tax liability.

To apply for gross rental income under the Non-resident Landlord Scheme you must complete and submit the appropriate application forms to HMRC:

• NRL1 for individuals.
• NRL2 for companies.
• NRL3 for trustees.

Ensure Compliance: Landlords must ensure their UK tax affairs are up to date and that they have no previous UK tax obligations.

Stay Below Tax Threshold: Landlords should not exceed the UK tax personal allowance income threshold of £12,570.

By completing the NRL1 form and meeting the criteria, landlords can apply for exemption through the NRLS to receive gross UK property income without tax deductions by agents or tenants.

HMRC typically grants approval based on the landlord’s tax history and current circumstances.

Non-Resident Landlord Scheme Tax Rates

Under the Non-resident Landlord Scheme, non-resident landlords must follow UK income tax rules for their rental income. Here’s a simplified breakdown:

• Tax-free threshold: The first £1,000 of rental income is usually tax-free if no property expenses are claimed.
• Reporting to HMRC: Rental income over £2,500 must be reported to HMRC, regardless of claimed expenses. If allowable expenses are claimed, income over £9,999 must be reported.
• Allowable expenses: These include agent fees, maintenance costs, legal fees, insurance, cleaning, and gardening expenses.
• Personal allowance: The standard personal allowance is £12,570 for the tax year 2024/25. This means no tax is due on rental income until it exceeds £12,570 in the tax year.
• Tax rates: Once income surpasses the personal allowance, landlords are taxed at:
  • £12,570 – £50,270: 20%
  • £50,271 – £150,000: 40%
  • £150,001 and above: 45%
• Non-resident tax status: If you’re a non-resident of the UK for tax purposes, only your UK income is taxed.

Filing Annual Self Assessment Tax Returns

Even if tax is deducted at source, as a non-resident landlord you must file a Self Assessment tax return each year to declare your UK rental income, regardless of whether any tax is owed.

• Forms SA109 and SA105: Include supplementary forms SA109 (Non-Resident) and SA105 (UK Property) with your tax return.
• Submission deadlines: Paper returns must be submitted by 31 October and online returns by 31 January following the end of the tax year.
• Allowable expenses: Deduct allowable expenses such as property maintenance, management fees, mortgage interest, insurance, and utility bills to calculate your net taxable income.

It’s important to reiterate that failure to meet your tax obligations as a non-resident landlord can lead to fines. Therefore, understanding the tax deadlines and your responsibilities is a necessity.

We recommend you seek the services of a cross-border tax specialist who is experienced working with non-resident landlords.

They will be able to provide you with Non-resident Landlord Scheme guidance, clarify your responsibilities, and manage the filing of your current and past tax returns as required.

Paying Additional Tax

If your tax liability exceeds the amount deducted at source, you must pay the additional tax owed by 31 January following the end of the tax year. However, If the tax deducted at source exceeds your actual tax liability, you may be eligible for a refund.

Keeping Accurate Records

Keep detailed records of all rental income, expenses, and tax payments. This includes receipts, invoices, bank statements, and any correspondence with HMRC.

You must retain these records for at least five years after the 31 January submission deadline for the relevant tax year.

Tax Implications for Corporate Non-Resident Landlords

Under the Non-resident Landlord Scheme, companies with a UK property business are classified as non-resident landlords if:

Your main offices or other places of business are outside the UK.
You are incorporated outside the UK.

This means you are required to pay tax on rental income generated from UK properties. Companies can receive their rent without tax deduction by filling out the non-resident landlord companies NRL2 form.

Non-resident landlord companies must pay corporation tax on their UK property income. This means they must complete Corporation Tax Returns, similar to UK resident companies.

How AHR Group Can Help You With The UK Non-resident Landlord Scheme

Whether you’re an individual non-resident, expat or a corporate landlord, AHR Group offers comprehensive assistance in navigating the UK Non-resident Landlord Scheme.

Our expert team provides:

• Tailored guidance on understanding your tax obligations.
• Advice for completing necessary forms such as NRL1, NRL2 or NRL3.
• Guidance so you are compliant with HMRC regulations.
• Expert cross-border advice to maximise your available exemptions or reliefs.
• Help to manage your UK property investments while avoiding double taxation.

Our personalised support and cross-border expertise will help you efficiently manage your UK property investments and mitigate potential tax risks.