There is an obligation on letting agents and tenants to operate the Non-resident Landlord Scheme (NRL scheme) under certain conditions.
Letting agents of a non-resident landlord must:
Tenants (where there is no letting agent) who pay rent of more than £100 a week to a non-resident landlord must also:
Non-resident landlords are persons:
For these purposes individuals, companies and trustees can be non-resident landlords. For partnerships, each partner is treated as a separate landlord.
An individual will be regarded as having a ‘usual place of abode’ outside the UK if absent from the UK for six months or more. It is therefore possible for an individual to be resident in the UK for tax purposes and to be a non-resident landlord for the purposes of the NRL scheme.
Companies that have their main office or other place of business outside the UK, and companies incorporated outside the UK, normally have a usual place of abode outside the UK. However, companies regarded as resident in the UK for tax purposes do not have a usual place of abode outside the UK for the purposes of the scheme, even if incorporated outside the UK.
The UK branch of a non-resident company, where that branch is within the charge to Corporation Tax, does not have a usual place of abode outside the UK for the purposes of the scheme.
Trustees have a usual place of abode outside the UK if all the trustees have a usual place of abode outside the UK (following the rules for individuals and companies as outlined above). If one or more of the trustees does not have a usual place of abode outside the UK, the trustees are not a non-resident landlord for the purposes of the scheme.
For jointly owned property (including husband-and-wife cases), each individual is treated as a separate landlord. It is possible for some of those landlords and not others to be non-resident landlords for the purposes of the NRL scheme. It is also possible for both spouses or one and not the other to be non-resident for the purposes of the scheme.
It is for the letting agent or tenant to determine the 'usual place of abode' of the landlord. If this is in doubt, the letting agent or tenant should get more information from the landlord to satisfy themselves on the point. In particular, PO Box numbers and 'care-of' addresses alone should not be relied on as evidence that the scheme does not apply.
Where letting agents or tenants have no reason to believe that a landlord has a usual place of abode outside the UK, they are not required to make any special enquiry and they then would not have to operate the scheme.
Letting agents who have to operate the scheme must:
1. Register with HMRC’s Personal Tax International (PTI) at:
HM Revenue & Customs
Personal Tax International Operations
S0708, PO Box 203
Bootle
L69 9AP
2. Account quarterly for any tax to HMRC Accounts Office, Shipley
Letting agents who have to operate the scheme must calculate the tax for each quarter and submit the quarterly return form NRLQ, together with payment of tax due, to HMRC’s Accounts Office, Shipley within 30 days of the end of the quarter. The quarters end with the last day of June, September, December and March.
Letting agents who are not required to make a payment of tax for any quarter generally do not need to complete a quarterly return form for that quarter. However, they should complete one if they receive a notice in writing from PTI telling them to do so.
The form NRLQ will normally be issued by the Accounts Office; otherwise, the letting agent should request one from the PTI.
3. Complete an annual information return
Letting agents who have to operate the scheme must provide to PTI, by 5 July each year for the year to 31 March, an Annual Information Return on form NRLY.
The form must include:
(i) The year ended 31 March to which the certificate relates
(ii) The letting agent’s name and reference number
(iii) For each non-resident landlord:
(a) the non-resident landlord name and address
(b) HMRC non-resident landlord approval number (if able to be paid rent without having tax deducted)
(c) gross rental income
(d) expenses paid, if any
(e) tax deducted, if any
(iv) The totals of the tax shown as payable in the letting agent’s quarterly returns for the year to 31 March.
Where they are required to account for tax, letting agents must provide their non-resident landlords with a certificate (form NRL6) each year by 5 July following the end of the year to 31 March.
The certificate must include:
(i) the non-resident landlord’s name and address;
(ii) the letting agent’s name and address;
(iii) the year ended 31 March to which the certificate relates; and
(iv) the letting agent’s total liability to tax for the year ended 31 March in respect of the landlord.
When the non-resident landlord completes their UK Self Assessment tax return for the year to 5 April in which the relevant 31 March falls, they can set off the tax shown on the certificate against their overall UK tax liability
and
keep sufficient records to show that they have complied with the requirements of the scheme.
Letting agents are not required to calculate or pay tax on the rental income of a non-resident landlord if the HMRC has told them in writing that the landlord is approved to receive the rental income with no tax deducted.
Penalties may be charged under Section 98 Taxes Management Act 1970 for failure to make a return or for making an incorrect return.
Tenants who are required to operate the NRL scheme must:
Tenants have the right to deduct any tax they have to pay under the scheme from their rent, or from any other money owing to the non-resident landlord. They also have the right to recover from the landlord any tax they have to pay under the scheme where they did not deduct it from their rent or other money owing.
As for letting agents, penalties may be charged under Section 98 Taxes Management Act 1970 for failure to make a return or for making an incorrect return.
Non-resident landlords can apply to receive rental income with no tax deducted
Most non-resident landlords who wish to receive their rental income gross (with no tax deducted by the agent or tenant) can apply to PTI for approval using one of the following forms:
NRL1i – if the applicant is an individual
NRL2i – if the applicant is a company
NRL3i – if the applicant is a trustee (including corporate trustees)
These forms can be accessed through the 'Related links' section of this page.
If approved, the rental income will be paid gross; however, it is still liable to UK tax in the normal way.
There are two categories of non-resident landlords who have a different procedure to follow for this application process:
Non-resident landlords can apply for approval to receive their UK rental income gross on the basis that:
Applications can be made no more than three months before leaving the UK (or at any time if already left the UK).
If approved, PTI will send a notice of approval to receive rental income gross to the non-resident landlord. They will also send a copy to the non-resident landlord’s accountant or tax adviser if they hold authority to do so.
A separate notice will be sent to the letting agents or tenants named on the application form authorising them to pay rental income to the non-resident landlord without deducting tax.
PTI may refuse an application from a non-resident landlord if:
PTI may withdraw approval from a landlord if:
If approval is withdrawn, PTI will issue a notice to the non-resident landlord stating its reasons for the withdrawal and the date from which it is effective.
PTI will also notify the letting agent or tenant of the date from which they should start deducting tax from the rents they pay to the non-resident landlord.
If PTI refuses an application, or withdraws approval, the non-resident landlord can appeal.
Where there is a change of letting agent or tenants (if no letting agent), a notice held by the previous letting agent or tenant cannot be transferred. New letting agents or tenants must deduct tax until they receive a notice from PTI. The non-resident landlord can apply to PTI for such a notice by writing with details of the new letting agent or tenant.
If a non-resident landlord dies, the HMRC approval notice to pay rent gross automatically ceases to have effect. Then, letting agents and tenants who continue to pay rent should deduct tax unless the new payee:
Letting agents and tenants who have to operate the scheme are usually required to submit quarterly and annual returns as described above. They must also provide other information when requested to do so by PTI.
Letting agents and tenants must make available for inspection all books, documents and other records that they have or control as PTI may reasonably require to enable them to be satisfied that the letting agent or tenant is meeting their obligations under the scheme.
Letting agents and tenants should retain records for six years after the end of the year to 31 March to which they relate.
The maximum penalty chargeable for failure to provide information is initially £300. However, if the failure continues after that penalty is imposed, there are further penalties of a maximum of £60 for each day on which the failure continues after the day on which the original penalty was imposed.
PTI has the right to inspect records kept by letting agents and tenants operating the scheme. In general, PTI will arrange to visit the letting agents to carry out their inspections, whereas if inspecting records kept by tenants they will usually ask tenants to send their records to PTI.
HMRC has guidance about how it carries out inspection of schemes such as those operated by letting agents and tenants of NRL schemes, which can be accessed via the 'Related links' section of this page.
PTI may charge penalties where letting agents and tenants submit incorrect quarterly or annual returns or if returns are not submitted when required. The maximum penalty for an incorrect return is £3,000 but it is common for the penalty to be reduced for various factors.
Further guidance on HMRC’s approach to calculating penalties can be found in the 'Related links' section on this page.
The obligations of the letting agents and tenants to operate the scheme are separate from those of the non-resident landlord to disclose the rental income on their tax return and pay their tax.
If PTI discovers that a letting agent or tenant has failed to account for tax when required to do so, it will normally seek to recover the tax from the letting agent or tenant.
However, if the letting agent or tenant is able to show that the non-resident landlord has already paid any tax due on the rental income or has no tax to pay on it, PTI will normally be prepared to agree to recover only interest and penalties from the letting agent or tenant.
PTI cannot disclose to letting agents or tenants whether a landlord has paid tax, due to confidentiality.
HMRC has produced a detailed guide for letting agents and tenants, which can be found in the 'Related links' section on this page, along with the annual information return (form NRLY).