What are the implications of being an overseas landlord?
All owners of property in the UK are required to pay tax on any rental income they receive, unless the income after allowable expenses is less than the individual’s personal allowances. However, special rules apply to the UK rental income of nonresident landlords or landlords who live abroad usually for more than six months.
These rules are outlined in the Non-Resident Landlord Scheme (NRL), which operates for rental income paid on or after 6th April 1996.
How does it work?
If you live overseas and let your property through an agent or property manager, they must adhere to the scheme by deducting basic rate tax from your rental income before they pass it on to you, unless they receive written notification to the contrary. You can offset this tax against your own tax bill at the end of the year.
So, the agent will either:
- pay the rental income gross to a non-resident client, if authorised to do so by HM Revenue and Customs (HMRC),
- deduct tax at the basic rate on net income subject to certain allowable expenses and deductions
If your tenant pays the rent directly into your bank account they must operate the NRL Scheme and deduct tax, unless the rent is less than £100 per week or they receive written notification from the HMRC’s Centre for Non-residents (CNR) informing them that they don’t have to.
How is the NRL Scheme administered?
The NRL Scheme is operated by the CNR. Non-resident landlords can apply to the CNR for approval to receive their rental income gross, i.e. with no tax deducted (an ‘approval’). If the application is successful, the CNR will issue a notice and the agent will not be required to deduct tax.
Landlords with poor tax histories may be refused an approval and, in these cases, agents will be obliged to continue to deduct tax at the current basic rate on their net rental income. Landlords must inform HMRC if they return to live in the UK or if their tax situation changes.
How do I obtain an approval to receive rental income gross?
An approval will allow you to receive all rental income due without deductions to cover tax liabilities. The forms are available to complete online, over here. If there is more than one owner then both need to apply separately e.g. if one or both live abroad.
It should be understood that an 'exemption' does not mean that the NRL is exempt from tax. It just means that the letting agent is exempt from deducting.
You can apply for approval if:
- Your UK tax affairs are up-to-date
- You have never had any UK tax obligations
- You do not expect to be liable for UK tax
Many people are entitled to set personal allowances against their income. If your UK income after allowable expenses is less than your personal allowances, then you will not be liable for tax. Landlords and agents will be notified simultaneously of decisions to grant or withdraw approval.
It’s important to work closely with your property manager and financial adviser to ensure you gain the maximum benefit and file your returns in good time.
At Rent North East we take the headache away from our overseas landlords by offering free advice on how to manage the whole lettings process most effectively. Working with our financial services partner, Haffner Hoff, we can offer comprehensive financial planning advice to assist you while you’re away, and to ensure you benefit from any tax breaks whilst we manage your property. In fact, we’ll look after everything leaving you free to focus on other things.
If you’d like to discuss your property management needs in more detail or require further advice on the NRL Scheme, please call us on 0191 303 7778. We’re here to help!
Further information on the NRL Scheme from the HMRC
If you require further information on the scheme, visit the HMRC website at www.hmrc.gov.uk for all booklets and forms:
Non-Resident Landlords - guidance notes for letting agents and tenants
A letting agent’s guide to the NRL Scheme
NRL1 (if you are an individual)
NRL2 (if you are a company)
NRL3 & Notes (if you are a trustee)
NRL4 - 6
Inland Revenue’s CNR office
t: 0151 472 6208/6209
(outside the UK t.+44 151 472 6208/6209)
f: 0151 472 6149