If you're a letting agent or tenant, consider employing the Non-resident Landlords Scheme
Non-Resident Landlord Scheme: A Guide for Renting Out UK Property
If you're a non-UK resident planning to rent out property in the UK, it's essential to understand the Non-resident Landlord Scheme (NRLS). This scheme, governed by the Taxation of Income from Land (Non-residents) Regulations 1995 (SI 1995 No. 2902), requires that landlords living outside the UK for more than six months have tax deducted at source from their rental income unless they apply and are approved to receive it gross (without tax deducted).
Qualifying as a Non-Resident Landlord
To qualify as a non-resident landlord, your ordinary residence must be outside the UK for over six months, regardless of your UK tax residency status, and you must receive rental income from UK property.
Tax Deduction Process
Normally, letting agents or tenants must withhold 20% basic rate tax from your rental payments, which counts toward your UK tax liability when you file your Self Assessment return.
Applying for Gross Status
To avoid this withholding and receive your rent in full, you must apply to HMRC by submitting the approved NRL1 form (or equivalent). Approval depends on having your UK tax affairs up to date and a commitment to file any required UK tax returns promptly.
Record Keeping
Even if approved for gross payments, you must maintain detailed records of all rental income and expenses for at least four years and complete an annual Self Assessment tax return to declare profit and claim allowable deductions.
Penalties and Compliance
Failure to follow the rules can result in penalties. Penalties can be up to 100% of the tax due, both for landlords and agents who pay gross without approval. It is important to keep HMRC informed of any changes and review your status regularly.
In summary, under SI 1995 No. 2902, the Non-resident Landlord Scheme mandates tax withholding on UK rental income by non-residents unless approval is obtained from HMRC to receive rent gross. The application process involves submitting the relevant form (NRL1), ensuring tax compliance, and agreeing to file UK tax returns. Compliance safeguards your rental income and avoids financial penalties.
It's crucial to note that these guidelines do not comprehensively cover the law as it applies to the Scheme. Letting agents and tenants should refer to relevant legislation when necessary. The notes do not represent a full statement of the law as it applies to the Scheme, and they do not have a binding effect on anyone's rights of appeal. When appropriate, letting agents and tenants should consult relevant legislation.
- To avoid paying tax upfront on your business income from renting out UK property, you need to apply for 'gross status' with HMRC and be approved.
- Understanding the UK's Non-resident Landlord Scheme, governed by the Taxation of Income from Land (Non-residents) Regulations 1995, is essential as it impacts the financing of your UK rental property business.
