UK Non Resident Landlord – Must Read Guide
If you have rental property in the UK and spend time overseas you may be classed as a Non Resident Landlord.
And if you are our UK tax authorities aka HMRC will usually want to here from you.
That’s because you have a set of strict rules to comply with. Failure to do so could lead to severe tax penalties.
This article covers what you need to know.
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If you rent our property HMRC would like to hear from you no matter where you live
In simple terms, you are a non resident landlord (NRL) if you have rental property in the UK but live abroad for 6 months or more.
Usually, when deciding whether or not you are resident for tax purposes, you’d look to the Statutory Residence test to help you decide, but not in this case.
In this instance. It is perfectly clear. You are classed NRL if you live outside the UK for 6 months or more per year. It’s that simple.
As a result, some people who are classed as UK resident for tax purposes in all other situations could still be classed as an NRL here.
And the rules still apply to properties under joint ownership, so if you live abroad for 6 months or more you’ll still be liable for tax on your share of any earnings from the property.
There are two ways for this tax to be paid.
Non Resident Landlord Scheme
The UK Non Resident Landlord Scheme (NRLS) removes the tax paying responsibility from you and places it firmly in your tenant or agent’s hands. Sounds good, if not for a couple of issues.
- They are responsible for removing the tax. They usually just subtract 20% which you may not need to pay.
- Everyone might get in trouble if things aren’t done correctly.
Usually, a letting agent would take care of everything, but in the absence of a one of those the responsibility passes to the tenant.
So just to be clear, either the tenant or the agent become responsible for collecting and paying tax to HMRC.
Though letting agent companies should know what to do, and will usually assist a landlord through the process, some might not. It is in your interests to ensure they know what they are doing. After all you don’t want them subtracting too much tax from your rental income!
And did you know friends or family members who are looking after the property for you will essentially become no different to a letting agent in the eyes of HMRC.
The key being this. If you care about whoever is looking after the property for you or your tenant you should let them know about this scheme. They could get fined up to £3,000 if you don’t.
Rental income without deduction
Here’s the good news.
There is an alternative to tenants or agents deducting rent. This is where a the landlord applies to HMRC to receive their rent without any tax deduction.
Perhaps, not surprisingly, it’s a popular approach.
It is done by completing a application to have UK rental income without deduction of UK tax – individuals (NRL1) form. You can find the first NRL form here. (I say first because unfortunately there are a few of these forms. How many of them you actually end up needing to complete will come down to your personal situation).
When you are accepted onto this scheme HMRC will write to either your tenant or letting agent to inform them that they do not need to make any tax deductions from their rental payments.
Most landlords appreciate this, but its not all good news.
You are then obligated to complete an annual self assessment tax return, which in turn means you don’t just have one form to fill out. You’ll have at least two, but in many cases more. How much actual work is involved will depend on exactly how you go about completing your self assessment.
You have a few options for doing this.
First, there’s the traditional method where you complete the forms by hand and post them. Second, you can use software assistance, and finally you can simply pay an accountant or tax advisor to do it for you.
There’s no way around it. The pen and paper route will involve multiple forms. Everybody completes form (SA100), then you complete any of the following forms that are applicable to your situation:
Self Assessment Forms
- employees or company directors – SA102
- self-employment – SA103S or SA103F
- business partnerships – SA104S or SA104F
- UK property income – SA105
- foreign income or gains – SA106
- capital gains – SA108
- non-UK residents or dual residents – SA109
Those links take you directly to HMRC’s form download page. Once there, you can download each form and some additional supplementary notes if required. If you aren’t sure which forms you need to complete the accompanying supplementary notes should help.
The next approach is to get some software to help you. Taking the best part of a day to fill paper forms becomes about half an hour when you go digital. I’ve compared some tax software packages here, but for tax returns specifically you might want to try GoSimpleTax. It’s easy to use, low cost and even gives you tax tips! Right now you can try it for free here.
Alternatively, if you want to minimize the chance of errors and maximize your time, you can pay somebody to do everything for you. UK Landlord Tax have a pretty good reputation in this space. They offer professional specific guidance based on many years experience.
Don’t be late!
Remember the UK tax system runs from the 6 of April in one year to the 5 April of the next year, and you should submit your tax returns by the 31 October if sent by post or 31 January if completed online.
If you are late you’ll get fined a minimum of £100 and if you don’t pay your tax bill HMRC can do all sorts of things to get the money. Debt collection agencies, taking money straight out of your bank account or even selling things you own are all on the table.
Personal allowance situation
If you have a British passport, you may not have to pay tax at all and if you do, it should be less than it otherwise would be if you didn’t.
You see, British passport holders living overseas are eligible for the Income Tax Personal Allowance which is currently £12,570. That means, providing your rental income doesn’t exceed this amount you shouldn’t have any tax to pay.
Incidentally, a couple would have a combined personal allowance of £25,140.
What agents and tenants need to do
UK tax authorities (aka HMRC) make signing up to get rental income without deduction the preferred option for most.
But in some circumstances HMRC may not accept your application and it’s also possible that you may prefer the agents or tenants to handle everything.
If this is the case the agent or tenant will be responsible for collecting your tax.
Tenants paying rent of more than £100 per week will have to withhold tax and even if they pay less they will still have to complete an annual return to HMRC and declare the amount of rent they’ve paid.
Both agents and tenants need to register with NRLS within 30 days of the start of a tenancy.
Letting agents should complete the Non Resident Landlord: application by UK letting agents to register for the Non Resident Landlords Scheme (NRL4) form which you can find here.
Tenants can either call or write:
Telephone:03000 516 644
Outside UK:+44 3000 516 644
HMRC for help and advice
Charities, Savings and International 1
HM Revenue and Customs
BX9 1AU
United Kingdom
Agents and tenants paying more than £100 a week should work out how much tax is owed and then send payment within 30 days of the end of each tax quarter: 30 June, 30 September, 31 December and 31 March.
Tenants and agents must send reports to both HMRC and to the landlord annually. Of course they need to use yet another form to do this. It’s form NRLY and you can find it here.
They also need to send a certificate NRL6 (Another form! – you can find that one here) to the landlord each year before 5 July.
And finally, records should be kept for 4 years. These should include:
- Rent received if you are an agent or rent paid if you are a tenant with dates and amounts
- Any correspondence related to the landlord’s resident address
- Descriptions of any expenses paid including dates, amounts, invoices and receipts
Calculating how much tax is owed
Calculating how much is owed is pretty straight forward. You can calculate it as follows:
(Money paid – expenses) x tax rate
Tax is charged at the basic rate which at the time of writing is 20%. You can check the current rate here.
Money paid includes 3 months rent, any uncleared cheque and any money that the landlord asked be paid to somebody else.
Expenses are costs that aren’t taxed.
As an example, let’s say Rob pays £400 per month for an apartment.
For the three month period 30 September to 31 December he should pay £1200 rent, but his landlord asked him to make a £100 payment to a 3rd party.
A lock on a door was replaced for £50 as well. This door lock replacement is classed as an expense. As a result the amount of tax due is £260, worked out as follows:
Money paid = £1350.
Expenses = £50
Tax = 20%
£1350-£50 = £1300
£1300 x 20% = £260
Tenant Finders
If you find tenants for an overseas landlord you don’t have to pay tax under the scheme providing:
- Rent is collected for no more than 3 months
- The tax is no more than £100
Capital Gains Tax
It might not come as a surprise that non residents are liable for Capital Gains Tax (CGT) on UK property sales too too. If you dispose of your property i.e. by selling, swapping or in some cases giving it away you are usually going to be liable for CGT.
After all, the very fact you don’t live in the UK usually indicates the property isn’t your main home. (In some situations it could be, and if that was the case you should be able to avoid this tax).
For property, you pay 18% if you are a basic income tax rate payer and 24% if you are higher income tax rate payer.
Any non residents out there sold a property recently?
Another issue that tends to sit under the radar is property or land sale notification.
The fact of the matter is many people aren’t aware of the fact that all non-residents need to inform HMRC of all property or land sales.
Not only that but you must do it within 60 days!
And it isn’t necessarily a tax issue. It applies even if you lose money or make less than the tax free allowance (of £3K). It also applies no matter whether you are rent your property out or not.
In other words, it needs reporting no matter what.
If you need to report a property or land sale, you can do this by completing yet another form, which you can find here.
Don’t put it off! It needs to be done straight away if you want to avoid a fine. The amount you pay in fines is increased the later you are.
- 0-6 months costs £100
- 6-12 months costs an additional £300 or 5% of any tax due (whichever is greater)
- 12+ months cost an additional £300 or 5% of any tax due (whichever is greater)
And it doesn’t stop there as late penalties and interest can also be applied if you miss payment deadlines. Ouch!
