The UK Non-Resident Landlord Scheme (NRLS) is the way HM Revenue & Customs collects tax on rents from property owners who spend most of the year living overseas.
The name is misleading because tax residence in another country does not make a landlord ‘non-resident’ under the rules – it is a far broader term that catches any landlord who spends six months or more outside the UK.
If a landlord does not follow the rules, letting agents or tenants must deduct tax for them from the rents they collect or pay.
The rules also apply to friends or family looking after a rental home as a favour.
The key principle is if you are a landlord living outside of the UK, the profits from renting out land or property in the UK are taxable even when receiving the rent overseas.
Explaining NRLS Key Terms
The Non-Resident Landlord Scheme (NRLS) is full of technical terms that often have different meanings from other tax rules, so expats need to understand how the jargon applies to them.
The NRLS definition of a non-resident landlord is:
- Someone who receives rental income from property in the UK
- Has their ‘usual place of abode’ outside the UK.
Usual place of abode
A usual abode is not necessarily a main or permanent home.
Good examples are UK landlords who decide to winter overseas in a second home for six or more months. Even though their main homes are still in the UK, once they have spent six months living overseas in a tax year, NRLS rules apply.
The rules do not specify how long someone should spend living overseas for where they live to become their usual abode, but the rule of thumb in HMRC guidance is six months in any tax year is long enough.
However, HMRC guidance is just that and does not have the force of law and is open to legal challenge from a taxpayer who interprets the term differently.
No doubt HMRC settled on six months as one of checks under the Statutory Residence Test to see if someone is tax resident in the UK stipulates that they must spend at least 183 days in a tax year in the country.
The underlying law is included in the Income Tax Act 2007
Trying to skirt the rules by listing a UK address as a PO Box or ‘Care of’ does not make a landlord UK resident to avoid registering with the NRLS.
The NRLS tax year runs from April 1 until the following March 31, not the standard April 6 to the next April 5.
NRLS captures several types of landlord:
- Landlords tax resident in another country renting out a home in the UK
- Expats on temporary assignment for more than six months in any tax year renting out their main home or other property in the UK
- Companies registered or trading from overseas renting out property in the UK
- Members of the armed forces or Crown servants, such as diplomats, renting out property in the UK while posted overseas
- Trustees or partnerships
NRLS rules apply to land or property, which is agricultural, commercial or where someone lives – such as a buy-to-let, a shared house (house in multiple occupation or HMO).
Holiday lets come under the rules. These include permanently sited caravans or houseboats and second homes rented out occasionally as holiday lets.
A home someone owns but rents to a friend or relative are a special tax case and are outside NRLS.
Non Resident Landlord Scheme Application
Registering with the NRLS is not optional for a non-resident landlord.
Any landlord living outside the UK for more than six months in a tax year should sign up.
Landlords, letting agents or tenants ignoring the rules may face significant fines.
To sign up to the NRLS, complete the online application form through the Government Gateway or download the postal form.
How the NRLS works for landlords
Signing up with the NRLS allows a letting agent or tenant to pay a landlord rent without deducting basic rate income tax.
The landlord than files a self-assessment return and pays any income tax on rental profits.
If a landlord is not registered with the NRLS, the letting agent or tenant must deduct basic rate income tax from any rent they collect or pay.
A letting agent includes any friend or relative who looks after a letting property for a non-resident landlord, whether they are paid or not.
Agents and tenants must deduct the tax unless the non-resident landlord has a written certificate from HMRC showing they belong to the NRLS.
The agent declares the tax on a return every quarter and pays the money direct to HMRC on behalf of the landlord.
A landlord then files a self-assessment return listing rental income and expenses for the tax year. The landlord offsets the tax deducted against any tax due leaving a balancing payment.
Agents must make a deduction regardless of the amount of rent they collect.
Tenants only deduct the tax if the rent they pay is £100 a week or more.
For example, a tenant pays £550 a month rent, which is £6,600 a year, to a landlord who has not registered for the NRLS.
As the weekly rent of £6,600 divided by 52 is £126.92 and more than £100 a week, they must deduct basic rate income tax.
Basic rate (20%) tax on £550 is £110.
The tenant pays £440 to the landlord and £110 to HMRC.
The following month, the tenant pays a £200 repair bill for the landlord.
As the repair is allowed as a property expense, the tax due is 20% of £350 (£550 – £200), which is £70.
So, the tenant pays £200 to the plumber, £70 to HMRC and £280 to the landlord.
If the landlord had registered under the NRLS, the tenant would have paid £550 rent to the landlord each month. The landlord would declare the money on a self-assessment return and pay any tax due.
Jointly Owned Letting Property And The NRLS
If a letting property is jointly owned only the non-resident landlord registers under the NRLS.
The different scenarios include:
Two owners/ one non-resident landlord
In this case, if the non-resident landlord is not NRLS registered, the agent or tenants must split the rent for each landlord and deduct tax for the non-resident
If the non-resident is NRLS registered, rent is paid gross
Two owners, two non-resident landlords
Again, if the landlords are not registered, the rent is split, and tax deducted at source for each
If one is registered, the rent is split and paid gross for the registered landlord but deducted at source for the other.
If both are registered, the rent is paid gross to both
Find Out More About The NRLS
The best place to look for advice about the NRLS if you are unsure how the rules affect you is with an accountant or other tax professional.
HMRC published online guidance, but the content is aimed at a technical level and is often unclear to a layman.
Try these resources for more information about the NRLS:
- HMRC’s guidance notes for letting agents and tenants
- HMRC’s technical manual the Non-Resident Landlord Scheme
- The Chartered Institute of Taxation guide to the Non-Resident Landlord Scheme
Non Resident Landlord Scheme FAQ
The NRLS has a lot of quirky tax rules that expats must consider if they rent property in the UK from overseas.
The penalties for ignoring the rules are severe for landlords, their agents and tenants.
For instance, if an agent or tenant makes an incorrect quarterly return, the fine is a maximum of £3,000.
To help understand the NRLS, here are some answers to the most common questions asked by expat landlords.
The Non-Resident Landlord Scheme (NRLS) is how the UK tax man tracks and collects tax on rents from expats and other non-residents letting out homes in the UK.
The rules apply to landlords who stay outside the UK for six months or more even if they are UK tax resident.
If you receive rent from a tenant letting property in the UK and you live outside the country for six months or more in a tax year, you must register with the scheme.
Property is any home let on commercial terms – which means for a market value rent – and includes renting out your main home, a buy to let, shared HMO or a holiday let.
Landlords can apply to the NRLS online or by post.
Unless you can show your letting agent or tenant a letter from HMRC certifying you have joined the NRLS, they must deduct basic rate income tax from rents before paying them to you.
It should not affect the income tax you pay in the UK. Although letting agents or tenants will deduct tax at source, you can file a self-assessment return for the year to make sure you do not pay too much or too little tax.
No. HMRC considers homes let to family or friends tax neutral because they tend not to pay market value rent. Tax rules cap the amount of expenses a landlord can claim as the amount paid in rent, so the properties do not make a profit or loss.
Registering with the NRLS allows landlords to receive the full rent a tenant pays, but HMRC will demand letting agents and tenants deduct basic rate tax before paying on the balance if a landlord does not follow the rules.
Registration is not optional. If you are a non-resident landlord, you must register. Joining is also better for property business cash flows as income tax is paid on the January 31 following the tax year end in April.
Property income is tax treated as investment income in the UK and all non-residents pay tax on investment income. Expats in the European Economic Area (EEA) can offset a personal allowance against the income and often do not pay any tax at all. The personal allowance for 2020-21 is £12,500 – any UK earnings that are less than that are tax-free. However, it is a costly mistake not to declare the income even if no tax is due.