UK Non Resident Landlord Tax Guide

A landlord who lets out a UK property but doesn’t live in the UK is normally classed as a non resident landlord for tax purposes.

HMRC can class an individual, a corporation, a partnership and a trustee as a non resident landlord.

As a non resident landlord HMRC expects you to follow their legislation and report your rental income as required by their guidance.

Rental income received in the UK is generally always seen as taxable for both residents and non resident landlords which means HMRC needs to know about it so they can tax you correctly.

To manage the collection of tax from property income held by non residents HMRC has a scheme called the non resident landlord scheme.

Being seen as a non resident landlord might match your UK tax residence, but not always with it being possible to be both a non resident landlord and a UK tax resident at the same time.

Our non resident landlord tax guide explains what it means to be a landlord that’s not resident, how to reduce tax on your rental income and what HMRC expects from you to meet your UK tax obligations.

What makes me a non resident landlord?

Many UK landlords are non resident for tax purposes which means their status for the NRL scheme doesn’t need questioned.

For other landlords qualifying as a non resident landlord can be less clear with it covering individuals who only work abroad temporarily and includes members of the armed forces or crown servants stationed abroad.

HMRC uses the term usual place of abode when determining your non resident landlord status.

For individuals, HMRC generally considers a UK absence of 6 months or more as indicating that your usual place of abode is outside the UK.

As a landlord If your usual place of abode is seen as outside the UK HMRC will typically see you as non resident and the NRL scheme will start covering your rental income.

Non resident landlord scheme

The UK non-resident landlord scheme (NRL Scheme) is operated by HMRC to govern how non residents pay tax on their UK rental income.

If you reside outside the UK, you have the opportunity to apply for the non resident landlord scheme using form NRL1 which notifies HMRC of your non-resident status.

If you do not register for the overseas landlords’ scheme, HMRC will mandate that your letting agent automatically deducts tax from your rental income at a rate of 20% on a quarterly basis.

Landlords registered under the NRL scheme can ask HMRC if they can opt out of receiving property rental income with tax already deducted.

HMRC states they will typically give approval for tax not to be deducted if:

• You do not anticipate owing UK tax within the same tax year in which your application is submitted.
• Your UK tax affairs are up to date
• You have never had any UK tax obligations

An individual landlord who chooses to receive their rental income with no tax deducted can apply to HMRC using the form NRL1i which you can submit online.

If you haven’t applied for this exemption, your letting agent should supply a certificate of tax liability each year to confirm the total tax that has been deducted from your rental income.

Should I apply to receive rental income without tax deducted?

Registering for the NRL scheme and applying for your rental income to be paid gross without tax deducted is worth considering for many landlords.

It’s important to note that having an application accepted by HMRC does not mean that your rental income is exempt from UK tax and it is still recognised as taxable income.

If approved by HMRC it allows immediate access to all your rental income which can bring enhanced financial management and some tax planning benefits.

HMRC usually grants approval if the NRL1i filled out accurately and it is convinced that the non-resident landlord submitting the application will adhere to all UK tax responsibilities.

Do non resident landlords complete a tax return?

Landlords who reside outside the UK are generally obligated to submit a self-assessment tax return, even if no tax is due.

You can sign up as a landlord by submitting an SA1 form, which HMRC requires to establish your self assessment tax return record.

Unless HMRC tells you otherwise a self assessment tax return is still expected even if you have had approval through the NRL scheme for tax not to be taken from your rental income automatically.

A tax return will need to be completed each tax year and you must enter any other taxable income on the same tax return.

A non resident tax return gives you the option to include withheld tax paid through the NRL scheme, expenses related to your property income and any other types of taxable UK income.

If you intend to submit your tax return online, you will need to buy 3rd party commercial software because HMRC’s online services do not support non resident tax returns.

For landlords who don’t use an accountant and want to complete a tax return online you will need to buy the software and you will need your government gateway id and password to do this.

Alternatively, you can send a paper tax return including SA100 (main tax return), SA105 (income from property) and SA109 (residence).

Do I qualify for a personal allowance as a non-resident landlord?

Using the tax free personal allowance is a useful way to reduce taxable rental income in the UK.

Depending on your total taxable income in the UK the personal allowance could mean that all of your rental income falls below the PA threshold which means no tax will be payable.

As a non-resident landlord, you might be eligible for the personal allowance if the following criteria are met:

• You hold a British passport.
• You possess citizenship of an EEA country.
• There exists a double taxation agreement between the UK and your country of residence.

UK non resident landlord tax rebate

If you have already paid 20% withholding tax on your rental income it is possible that you can overpay income tax and be due a tax rebate.

Examples of overpaying tax through the NRL scheme include:

• Your rental income (including any other taxable income) is less than the tax free allowance which should mean all tax paid can be refunded.
• The tax owed is less than the 20% withholding tax already paid because your allowable expenses have reduced your total taxable rental income.

A tax rebate is usually repaid through self assessment after your self assessment tax return has been processed by HMRC for the tax year in question.

You can make a claim for the previous four tax years so you could be owed a substantial tax rebate.

Can a non resident landlord claim property expenses?

As a landlord you can offset some of the costs of buying and running your property – such as property repairs against your property income.

HMRC calls these costs deductible expenses and are claimed in the property section of your self assessment tax return.

Claiming deductible expenses is a legitimate way to reduce a rental business’ taxable profit and income tax payable.

Unused deductible expenses can be carried forward into future tax years to reduce taxable profits in a different tax year.

Six of the most common non resident landlord deductible expenses are:

• Buildings insurance.
• Professional fees like accountants and solicitors.
• Letting agents fees.
• Ground rent.
• General repairs to the property like painting or fixing a door.
• Mortgage interest loan relief.

In a similar way to deductible expenses if you have any qualifying capital expenditure (for example a new roof) this can used against any capital gains tax that may be owed if you sell your investment property.

Non resident landlord capital gains tax

The sale of a typical investment property in the UK is called a direct disposal and must be reported to HMRC within sixty days from the completion date of the property sale.

HMRC expects non resident landlords to declare the sale of UK property or land even if:

• You don’t owe capital gains tax on the sale.
• You incurred a loss from the property sale.
• You are enrolled in self assessment.
• You complete a self assessment tax return.

Landlords can submit a capital gains tax return online or by post through using your HMRC CGT tax on UK property account.

The rate at which landlords pay capital gains tax on property depends on the rate at which you pay tax on your overall income from the UK.

HMRC support for non resident landlords

The HMRC non resident landlord scheme offers support and advice to landlords not residing in the UK.

You can call the non resident landlord department from outside the UK on +44 300 322 9433 or inside the UK on 0300 322 943 between the opening hours of Monday to Friday: 8:30am to 5pm.