Owning property in the United Kingdom while residing abroad can be a lucrative investment opportunity. However, it also comes with tax obligations that non-resident landlords need to fulfil. The UK government devised the Non Resident Landlord (NRL) scheme to facilitate the collection of tax on rental income from these properties.
This article sheds light on the key aspects of the NRL scheme and the process of applying for gross rent payment, which allows non-resident landlords to receive rental income without basic rate tax deductions.
Understanding the NRL Scheme
The Non Resident Landlord scheme requires non-resident landlords to pay tax on rental income generated from UK properties.
This scheme is applicable to individuals, partnerships, companies, and trustees that own UK properties but are not considered UK residents for tax purposes.
The NRL scheme places the onus on letting agents or tenants to deduct basic rate income tax from the rental income before remitting it to the non resident landlord.
Non-Resident Landlords
In accordance with HMRC regulations, non resident landlords are the ones who meet the following criteria:
- They earn rental income from properties located in the UK.
- Their primary residence, commonly referred to as their "usual place of abode," is situated outside the boundaries of the UK.
Typically, HMRC defines an absence from the UK spanning six months or more as indicative of an individual having their primary residence outside the UK.
Nevertheless, it's important to note that a person could qualify as a resident for general tax purposes while simultaneously being recognised as a non-resident within the context of the Non-Resident Landlord Scheme.
For detailed guidance on the NRL Scheme, read our article on "A Complete Guide to Non Resident Landlord Scheme".
Applying for Gross Rent
One significant advantage provided by the NRL scheme is the opportunity for non resident landlords to apply for the receipt of gross rent.
This means that the rental income is paid to the landlord without the deduction of basic rate tax, which is typically 20%.
Non-resident landlords must register with HM Revenue & Customs (HMRC) to receive their rental income gross, i.e., without the deduction of tax at source. To achieve this, non-resident landlords must fulfil certain criteria and complete NRL forms.
Letting agents or tenants are then obligated to remit the rental income to the landlord without deducting tax, after approval of HMRC. If you're planning to relocate from the UK to reside abroad, it's recommended that you submit your application no more than 3 months before your departure from the UK.
Note:
It's important to note that HMRC won't be able to process applications prior to this timeframe. However, if your primary residence is already situated outside the UK, you're eligible to apply without delay.
Conditions for Applying for Gross Rent
Non-resident landlords can apply for gross rent payment if they satisfy any of the following conditions:
- Their UK tax matters must be in a current and updated state, including the fulfilment of all tax responsibilities related to their UK property.
- Non-resident landlords should not have any outstanding or unresolved UK tax commitments.
- The landlord doesn't expect being liable for UK income tax in the year they submit their application.
Forms for Application
To streamline the process of receiving rental income without tax deductions, non-resident landlords must complete the appropriate form based on their status. The following forms are used for different categories of non-resident landlords:
Completing the relevant form accurately is crucial to ensure that the application for gross rent payment is processed smoothly.
For example,
A non resident landlord is entitled to a monthly rent of £2,000. According to the NRL scheme, the letting agent is required to withhold tax at the basic rate of 20%. Thus, the agent deducts £400 (20% of £2,000) as tax from the rental amount. The remaining £1,600 is then disbursed to the landlord, while the deducted £400 is forwarded to HMRC.
However, if the landlord chooses to apply for gross rent payment and meets the eligibility criteria, they will receive the full £2,000 without any tax deductions.
Letting Agents and Tenants
The NRL scheme outlines important responsibilities for both letting agents and tenants involved with non resident landlords. As we delve into the following details, you'll gain insight into what it means to be a letting agent under the NRL Scheme, the obligations incumbent upon tenants, and the specific actions required to meet these obligations.
Letting Agent
A letting agent is responsible for property management on behalf of non-resident landlords. If you’re a letting agent for a non resident landlord, you are required to adhere to the NRL Scheme.
You are categorised as a letting agent when:
- Your typical place of residence is within the UK.
- You represent a non-resident landlord in matters related to the management or operation of their UK-based rental enterprise.
- You possess the authority to receive earnings from that rental enterprise or exercise control over the allocation of that income.
- You do not fall within the category of excluded individuals such as estate agents, solicitors, accountants etc.
Forms for Letting Agents
Register for NRL Scheme: This NRL4 form is meant for letting agents and want to register with HMRC as a member of the NRL Scheme. You must do this within 30 days of the date on which you first need to operate the Scheme.
Operating Scheme through Branches: This NRL5 form is meant for letting agents with branches and want each branch to be separately responsible for operating the NRL Scheme.
Tenants
If you’re a tenant of a non-resident landlord and your weekly rent averages over £100, you may have to operate the NRLS. This applies if your rent is paid to either a non-resident landlord, an individual located outside the UK, or a person who isn't a letting agent.
Obligations Under NRL Scheme for Letting Agents/Tenants
Under NRL scheme, several key obligations must be fulfilled to ensure proper tax compliance and reporting. You must tell HMRC and keep records to show that you have complied with the NRLS requirements.
Here are some of the actions that you as a letting agents or tenant must take to fulfil your requirements under the NRL Scheme.
NRL6 - Certificate of Tax Liability
Complete form NRL6 if you have withheld tax from the rental earnings of a non-resident landlord. You are required to provide this certificate to the landlord and retain a duplicate for HMRC's auditing requirements.
NRLY - Annual Information Return
You need to complete form NRLY if you find yourself in any of the following situations:
- You are a letting agent responsible for non-resident landlords, irrespective of whether you have withheld any tax as per the NRL Scheme.
- You are a tenant who has deducted tax under the scheme.
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NRLQ - Quarterly Return
Each quarter, you are obligated to settle any outstanding tax with HMRC by using form NRLQ. HMRC will typically provide you with the return form; if this is not the case, you should correspond with HMRC.
The quarters for which the returns are due conclude on these dates: 30 June, 30 September, 31 December and 31 March. If no tax payment is due for a specific quarter, the submission of a quarterly return form is unnecessary, unless HMRC issues a directive to the contrary.
To ensure compliance, the return form NRLQ must reach HMRC no later than 30 days after the respective quarter's conclusion; for instance, the NRLQ form for the quarter concluding on 30 September 2021, should be received by HMRC by 30 October 2021.
Conclusion
The Non-Resident Landlord scheme in the UK addresses the tax obligations of non-resident landlords who earn rental income from properties within the country's borders.
By understanding the conditions for application and utilising the appropriate forms, non-resident landlords can efficiently manage their tax obligations and financial transactions related to their UK rental properties while residing abroad.
