Guidance

Which agents should operate the Non-resident Landlords Scheme

Updated 10 November 2023

Who should not operate the Scheme

Letting agents should operate the Non-resident Landlords Scheme (NRLS).

You’re classed as a letting agent if:

• your usual place of abode is in the UK
• you act on behalf of a non-resident landlord in connection with the management or administration of their UK rental business
• you have power to receive income of that rental business, or have control over direction of that income
• you’re not an excluded person

This includes people acting in a professional capacity, such as:

• estate agents
• solicitors
• accountants

A friend or relative of the landlord may also be a letting agent for the purposes of the Scheme, if they meet the conditions of being classed as a letting agent.

Chains of letting agents

Some non-resident landlords have more than one letting agent in the UK for the same source of rental income. This is a chain of letting agents.

Where there is a chain, it is the last agent in the chain who must operate the Scheme. For example, one letting agent may collect rents and pass them on to a second letting agent. The second agent who must operate the Scheme.

Elected letting agents

Where there’s a chain of letting agents, responsibility for operating the Scheme can be transferred. It can be transferred from the last agent to any other agent in the chain, by making a joint election to transfer.

To make an election, write to HMRC and give the following details:

• name and address of the elected letting agent
• name and address of the other letting agent
• name and address of the non-resident landlord or landlords
• date from when the election is to take effect (the letting agents can choose this date but it cannot be before the first day of the quarter in which the election is made)

The election must be signed by both letting agents by either:

• sending in one letter signed by both parties
• writing in separately and each providing the same information

There is no special form for making an election.

Letting agents may wish to make an election for only part of a landlord’s rental business. They can do this by specifying the property to which the election relates.

Either letting agent may revoke the election by writing to HMRC. This will take effect from whichever date is later, either:

• the first day of the quarter following the date the notice of revocation is received
• 30 days after the date the notice of revocation is received

HMRC will write to both letting agents telling them the date from when the revocation is effective.

Notices from HMRC

HMRC may send a notice to you telling you to operate the Scheme.

The notice will usually tell you the:

• landlords for who you must operate the Scheme
• date from which you must operate the Scheme

If you receive a notice you must operate the Scheme until either:

• HMRC withdraws the notice
• you stop acting for the non-resident landlords

Who should not operate the Scheme

If you’re an ‘excluded person’ you are not treated as letting agents for the purposes of the NRLS and do not need to operate the Scheme.

An excluded person is a someone whose activity on behalf of the non-resident landlord is confined to giving legal advice or legal services.

For example, a solicitor would be an excluded person if their only action in relation to a UK property was either to:

• receive apportioned rental income or a premium in the course of a conveyance
• take legal proceedings for the recovery of arrears of rental income

Solicitors who draw up a lease and collect the rent for the first period are not excluded persons.

Drawing up a lease is providing a legal service, but collecting the rent means the solicitor is also acting as a letting agent.

Banks and building societies are not treated as letting agents for the purposes of the NRLS if they only provide an account where:

• rental income is paid into
• withdrawals are made from

People who find tenants for non-resident landlords are not treated as letting agents for the purposes of the Scheme if they either:

• receive fees for that service but do not handle or control any rental income
• handle or control income only for short periods - for example, a tenant-finder

What you must do if the Scheme applies

You must:

• register for the Scheme
• provide a quarterly return and payment
• provide an annual return and payment
• if you need to account for tax, provide your non-resident landlords with a certificate
• keep records to show that you have complied with the requirements of the Scheme

Operation of the Scheme by branches

If you have branches, you can choose to apply to register each branch as a separate letting agent. Each branch can only apply if they deal with an average of 5 or more non-resident landlords each.

‘Branches’ mean the units in which you divide your business. It includes:

• areas
• regions
• other administration centres

If you want your branches to operate the Scheme separately, you must apply in writing to HMRC.

When you fill out the form, you must provide the following information:

• your name and head office address
• the name of your Tax Office and your tax reference number
• the name and address of each branch that is to be registered to operate the NRLS
• the number of non-resident landlords dealt with by each branch

It will help HMRC if you also provide the name and telephone number of a contact at each branch.

You must make a declaration on the form that you do not act for any non-resident landlord apart from those whose business is managed by the branches.

When an application is approved, each branch will be able to operate the Scheme separately from the first day of the quarter following the quarter in which the approval is given and any quarter after.

HMRC will tell each branch if it’s approved. Each branch will get a separate reference number.

You can remove approval for branches separately by writing to HMRC. It is your responsibility to give notice in writing, not your branch. The removal will take effect from the first day of the quarter following the quarter in which the removal is made.

Your head office should contact HMRC so they can amend their records if an approved branch:

• closes
• stops acting for non-resident landlords

Your head office should also contact HMRC if a new branch opens or starts to act for non-resident landlords. It will need to:

• provide details of the new branch
• confirm that the branches still act for an average of 5 or more non-resident landlords each

Refusal or withdrawal of approval

HMRC may refuse or withdraw an application where it has reason to believe that:

• the average number of non-residents per branch is less than 5
• you are likely to fail to comply with the obligations imposed on you by the rules of the Scheme
• the declaration on the form is incorrect

If we refuse or withdraw an approval, we will write to you and give you reasons for this. We will also explain how you can appeal against the refusal or withdrawal.

You should appeal in writing to HMRC within 30 days of the date of the notice. If the appeal cannot be settled by agreement between both parties, it will be brought to an independent appeal tribunal.

Tenant-finders

Some people enter into arrangements with non-resident landlords where they find a tenant for the landlord’s property.

The tenant-finder then collects rent for a period from which they recover the fee. The tenant then pays rental income to the landlord. In these circumstances, the tenant-finder does not have to operate the NRLS for the landlord, provided the:

• period for which rent is collected is no more than 3 months
• tax which would be payable would be no more than £100

The non-resident landlord will receive rental income with no tax deducted for a period where tenant-finders:

• collect that period’s rent
• do not have to operate the Scheme

As a result tenants will pay rent directly to the landlord and may have to operate the Scheme. In these circumstances tenant-finders should tell the tenant of their obligations under the NRLS.

How to register

If you have to operate the NRLS you must register with HMRC. You must do this within 30 days of the date on which you first need to operate the Scheme.

This includes if you’ve been approved to pay rental income to all your non-resident landlords with no tax deducted.

To register, you’ll need to tell HMRC your:

• name and address
• tax reference number and the name of your Tax Office

It will help if you also provide a contact name and telephone number for them to deal with any NRLS queries.

When you register, HMRC will give you:

• your registration number
• the appropriate forms
• information allowing you to operate the Scheme

Use form NRL4 to apply to register with HMRC as a member of the NRLS.

If you fail to register within the 30-day period you may be charged a penalty.

Calculating and paying the tax

When you operate the NRLS you must calculate the tax for each quarter, unless told otherwise. You must pay the tax due to HMRC within 30 days of the end of the quarter.

You have the right to deduct tax you have to pay from rental income you receive on behalf of the non-resident landlord or from any other money owing to the landlord.

You also have the right to recover tax from the landlord where you did not deduct it from the rental income, or other money owing.

You do not need to calculate or pay tax on the rental income of a non-resident landlord if HMRC tells you the landlord is approved to receive rental income with no tax deducted. You should not accept a non-resident landlord’s statement that rental income may be paid without deduction of tax. You should only act on a notice from HMRC.

How to calculate the tax

You should calculate tax on rental income at the basic rate of income tax, less any ‘deductible expenses’.

In your calculation you should include rental income you receive in the quarter and rental income which was:

• income which you had the power to receive
• paid in the quarter at your direction to another person without being received by you

In your calculation you should also include deductible expenses which:

• you paid in the quarter
• were paid away in the quarter at your direction by another person

Deductible expenses and non-resident companies

From 6 April 2020 non-UK resident landlords that are companies will be subject to Corporation Tax instead of income tax.

This means that agents for these landlords will have to consider Corporation Tax rules when deciding if an expense paid out by them can be deductible as an expense in calculating property profits.

The general rules still apply, but if the expense is interest you first need to consider the following Corporation Tax rules.

Corporate Interest Restriction

From 6 April 2020 the Corporate Interest Restriction has applied to non-UK resident company landlords.

These rules limit the amount of financing costs that can be deducted from rental income. You can find out more on Corporate Interest Restriction in HMRC’s Corporate Finance Manual.

Some agents will be able to apply Corporate Interest Restriction without much difficulty, but some may not.

For those agents that have difficulties, there is an alternative Corporate Interest Restriction rule which allows the agent to calculate the financing cost deduction. This is limited to a fixed allowance (30%) of the UK rental income, before deducing expenses other than financing costs.

This rule is subject to the making of an election by the agent.

You can find the guidance here on how the alternative Corporate Interest Restriction rule works and about the obligations of the landlord if this alternative rule is used.

All agents need to consider the impact of Corporate Interest Restriction before they can reasonably be satisfied that interest paid on loans relating to rental properties can be a deductible expense.

Hybrids

The hybrids rule applies to groups with UK parent or subsidiary companies involved in cross-border or domestic transactions that produce a mismatch in the tax treatment.

For example, double deductions for the same expense, or deductions for an expense without any corresponding receipt being taxable.

The hybrids rule will not apply for the purposes of calculating the amount of tax to be withheld and you can treat the payment as an allowable deduction (subject to the guidance on Corporate Interest Restriction and Unallowable Purpose), if none of the following apply:

• if the non-UK company landlord is a hybrid
• if anyone you are paying money to is a hybrid
• are you paying money under a hybrid instrument

If any of the hybrid rules apply or you are unsure, you should not treat the payment as an allowable deduction. Further guidance for hybrids can be found here.

Unallowable purpose

The agent will need to understand the purpose of any loans and not claim a deduction for the payment if the loan has been made for an unallowable purpose.

Unallowable purpose is broadly similar to the wholly and exclusively rule which applied for Income Tax although it specifically applies where the purpose of the loan is tax avoidance.

If the agent was reasonably satisfied about the purpose of the loan under the Income Tax rules, they can be reasonably satisfied under the new Corporation Tax rules.

The unallowable purpose guidance can be found here.

It is for the company landlord to determine if any of the rules are apply and that the tax withheld from the rental income covers its UK tax liability. If not, the company landlord must notify HMRC of its liability for Corporation Tax, file a return and pay any tax due.

Excess expenses

If deductible expenses for any quarter exceed the rental income for the quarter, you should:

• carry back excess expenses and deduct them from the rental income of the same landlord for previous quarters
• carry forward the expenses by deducting the balance of any excess from rental income of the same landlord received for later quarters, taking earlier quarters before later quarters — carrying forward excess expenses is not restricted to quarters within the same year to 31 March

You must not deduct excess expenses paid for one landlord from the rental income of another landlord.

You must carry forward the excess amount to the next quarter and add to the financing costs paid out in that quarter, if all of the following applies:

• you are the agent for a corporate landlord;
• you have made an election for the alternative Corporate Interest Restriction rule to be applied
• financing costs in a quarter exceed the financing costs allowance for that quarter

The restricted amount of financing costs cannot be carried back to earlier quarters.

This is different to excess expenses where letting agents can carry back as well as carry forward. The guidance and example for alternative Corporate Interest Restriction rule excess financing costs can be found at point 3.5 of this guidance note. SORT LINK

Letting agent’s own fees

Your own fees are deductible expenses if they meet the basic test. This includes if they are retained by you from rents received instead of paid out to a third party.

Letting agent’s excess expenses

If you pay out more in a quarter in deductible expenses than you receive in rental income, you can set off the excess expenses against rental income received on behalf of the same landlord for earlier or later quarters.

Expenses that are not deductible expenses

You can only deduct expenses that you pay, or which are paid at your direction. This means you cannot deduct:

• expenses which the landlord pays (even if they have details of the expenses)
• expenses which have accrued in a quarter but which have not been paid in the quarter
• capital expenditure or allowances
• any personal allowances due to the landlord

You must calculate tax due for each of your non-resident landlords. You cannot deduct expenses paid for one landlord from rental income for another landlord. In calculating the tax due for one landlord, you can deduct expenses relating to one property from rental income relating to another.

Repayable amounts

Excess expenses explains how excess expenses for a quarter can be carried back to an earlier quarter. This will reduce your tax liability for that earlier quarter. This reduction is called a ‘repayable amount’.

You can get a set-off or repayment of the repayable amount by either:

• setting-off the repayable amount from the total tax due to HMRC for other non-resident landlords for the same payment quarter as when the excess expenses arise
• claiming a repayment from HMRC on the NRLQ form, which you complete for the quarter when the excess expenses took place

Quarterly returns and payment of tax

You must pay any tax due each quarter to HMRC, using form NRLQ.

Quarterly returns are due for the periods ending:

• 30 June
• 30 September
• 31 December
• 31 March

If you do not need to make a payment of tax for any quarter you do not need to complete a quarterly return form. However, you should complete one if you receive a notice from HMRC telling you to do so.

On the return form you must include:

• the total amount of tax due for all your non-resident landlords for that quarter
• where there is no tax due in the quarter but you are due a repayment, the amount of the repayment claimed

If you act for more than one non-resident landlord you should:

1. Calculate the tax due for each landlord separately.
2. You should then add together the amounts due.
3. Then subtract any repayable amount.

You should show the result of this calculation on form NRLQ.

The form explains how to send payment for the amount due to HMRC.

The return form NRLQ must be sent in time to arrive at HMRC no later than 30 days after the end of the quarter to which it relates. For example, form NRLQ for the quarter ending 30 September must arrive by 30 October of the same year.

Find out how to send a quarterly return for your non-resident landlord tax to HMRC.

Interest payable on late payment

If you do not pay tax by the due date, HMRC may charge interest from the date when tax became due until it is paid.

If interest is charged for late payment of tax and that tax is later repaid, you cannot recover any of the interest.

Assessments to recover tax

Under the NRLS, tax is payable without the need for HMRC to make tax assessments. However, HMRC may make an assessment if it has reason to believe that:

• an amount should have been paid but was not
• a quarterly return is incorrect

In these circumstances HMRC will make the assessment. If we make an assessment it will give details of how you may appeal against it.

Appeals should be made in writing to HMRC within 30 days of the date of the assessment.

If the appeal cannot be settled by agreement between both parties, an independent appeal tribunal will hear it.

HMRC may charge interest on assessed Income Tax from the date when the amount of tax became due until the date it is paid.

Making annual returns

If you have to operate the NRLS you must send an information return to PTI by 5 July for the year to 31 March on form NRLY.

You must provide the following details separately for each non-resident landlord:

• the landlord’s name and address
• the amount of rental income for the year to 31 March, before the deduction of expenses
• if you’re not authorised to pay rental income to the landlord with no tax deducted:
  • the deductible expenses for the year to 31 March
  • the total of the tax shown as payable in your quarterly returns for the year to 31 March
• if you’re authorised to pay rental income to the landlord with no tax deducted, the landlord’s approval reference number

If you’re unable to download the form or complete the online return, contact HMRC.

Form NRLY may need to be sent with continuation sheets if you have more than 5 landlords to report.

You can attach your own schedules to the form rather than use the continuation sheets. For example, you may want to do this where you can produce computer-generated schedules. However, your schedules must contain all the details needed for each non-resident landlord. In these instances you must use the downloadable form, not the online service.

You should always include on the annual return either an approval reference number, or a figure of deductible expenses (if there were any). Where you receive a notice authorising you to pay rental income with no tax deducted part way through the year, you should show:

• the approval reference number
• the tax shown on the quarterly returns up to the quarter in which the approval notice was issued

You should provide the landlord’s address as follows where the non-resident landlord is:

• an individual, his or her principal residential address
• a trust, the address of one of the trustees and:
  • in the case of a corporate trustee, the address of its registered office or its principal place of business
  • in the case of a professional trustee, the address of his or her employment or principal place of business
  • in any other case, the trustee’s principal residential address
• a company, the address of its registered office or its principal place of business

Penalties

Penalties may be charged for either:

• failure to make a return
• making an incorrect return

Certificate you must give to the landlord

Where you’re liable to pay tax, you must provide the landlord with a certificate by 5 July following the end of the year to 31 March.

The certificate must include:

• the non-resident landlord’s name and address
• the year ended 31 March to which the certificate relates
• your name and address
• the total liability to tax for the year ended 31 March for the landlord

Certificates must also include a declaration by you, confirming the details are correct and complete.

You may include extra information on the certificate if you wish.

You can use a certificate of tax liability (NRL6). You should keep a copy for audit purposes.

Non-resident landlords should:

• not complete the certificate themselves
• keep copies of the certificates

When landlords complete their UK Self Assessment Tax Return for the year up to 5 April they can set off the tax shown on the certificate against their overall UK tax liability for the same year.

This is providing the landlord has paid the deduction of the tax shown on the certificate. Landlords may be asked to provide the certificate for HMRC, as evidence in support of their Self Assessment.

The amount of tax shown on the certificate may not be the same as the non-resident landlord’s tax liability for the profits of their rental business. This is because the rules of the NRLS are not the same as the rules for taxing the profits of a rental business.

For example:

• you must calculate rental income paid, less expenses paid, whereas landlords must calculate rental income they have received less expenses
• you cannot deduct expenses paid by the landlord
• you can deduct expenses where you can reasonably be satisfied the expenses would be allowable when computing the profits of the landlord’s rental business, whereas the ‘reasonably satisfied’ test does not apply to landlords
• you cannot deduct capital expenses, whereas landlords may be entitled to capital allowances
• landlords who are individuals may be subject to the higher rate of tax
• landlords who are trustees of a discretionary or accumulation trust may be subject to the extra rate of tax for trusts