Overseas landlords: summary of the non-resident landlord scheme
Property income received by non-resident landlords
ITTOIA/S269 and CTA/S5
If property is located in the United Kingdom (UK) then any income generated from it is charged to tax in the UK. This applies even if the property owner is not a UK citizen or for the purposes of the Non-Resident Landlord (NRL) Scheme, has a usual place of abode outside the UK. This is not their residence status for UK tax purposes, so someone can be a UK tax resident and also a non-resident landlord.
Income or Corporation Tax remains chargeable on UK rental income even where the landlord is non-resident for other UK Tax purposes. No Double Taxation Conventions transfer this right to any foreign authority. If the rental income is again charged to tax in a person’s country of residence, then that country may allow double taxation relief.
Summary of how the non-resident landlord scheme operates
ITA07/S971 and 972
Basic rate Income Tax must be deducted by the landlord’s representative (letting agent, or certain tenants if there is no letting agent), from the UK rental income of landlords who usually live outside the UK. The letting agent or tenant must pay the tax deducted directly to HMRC. However, non-resident landlords (NRLs) have the option of applying for approval to receive their rental income with no tax deducted. If certain requirements are met, approval is granted, and they are registered to receive Self-Assessment (SA) returns to declare their rental income. The granting of approval does not grant exemption from UK tax; any liability is dealt with under SA.
Individuals, companies and trustees can be NRLs. For partnerships, each partner is treated as a separate landlord.
Non-Resident landlord’s representative
For the purposes of the scheme, ‘letting agents’ are persons who act in the management or administration of a non-resident landlord’s rental business. This may include friends and relatives of a non-resident landlord as well as professional letting agents.
The NRL scheme applies to:
- letting agents who handle or control UK letting income on behalf of a landlord whose usual place of abode is outside the UK and
- tenants who make payments directly to a landlord whose usual place of abode is outside the UK.
Letting agent’s and tenant’s responsibilities
Unless they have been notified by HMRC that they must pay rental income with no tax deducted, letting agents must deduct and account for tax on rental income received less allowable expenses paid. Tenants must deduct and account for tax on rental income paid direct to the overseas landlord.
Letting agents and tenants of non-resident landlords must account quarterly to HMRC (using return form NRLQ) for the tax deducted, without the need for an assessment, within 30 days of the end of the quarter. (Quarters run to 30 June, 30 September, 31 December and 31 March). If there is no tax liability in any given quarter, letting agents and tenants need not complete a quarterly return (unless, exceptionally, HMRC issues them with a notice requiring a return).
Letting agents and tenants of non-resident landlords must also make annual information returns on or before 5 July on form NRLY, with the exception of tenants authorised to pay their landlord with no tax deducted. Letting agents must complete annual information returns even if they are authorised to pay all their non-resident landlords with no tax deducted.
Meaning of ‘usual place of abode’
There are specific rules which apply only to the NRL Scheme. The rules of the NRL Scheme are concerned with the landlord’s usual place of abode, not their residence status for UK tax purposes. Although there is no statutory definition of ‘usual place of abode’ the NRL Scheme will apply to all landlords leaving the UK for a period that is expected to, or will, exceed six months.
Individuals have a usual place of abode outside the UK if they usually live outside the UK.
You should still regard the term as applying to them even if in a particular year they are resident in the UK for tax purposes, as long as the usual place of abode is outside the UK. (For example the individual may count as resident in the UK in a particular year because of a six months’ visit, or a visit of a shorter time when he or she has a place of abode available in the UK.) Do not treat someone as having their usual place of abode outside the UK if they are only temporarily living outside the UK, say for six months or less.
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 NRLs for the purposes of the scheme.
For jointly owned property (e.g. husband and wife), each individual is treated as a separate landlord. It is possible for some of those landlords and not others to be NRLs for the purposes of the NRL scheme. For example it is possible for one spouse to be a NRL and within the scheme, while the other lives in the UK and is unaffected by 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 therefore would not have to operate the scheme.
De minimis limits
Tenants who make payments directly to a landlord whose usual place of abode is outside the UK and who pay less than £100 a week in rent, do not have to deduct and account for tax unless they have been told to do so by HMRC.
There is no de minimis limit for letting agents.
Approval to receive rental income with no tax deducted
Non-resident landlords can apply to HMRC and obtain approval to receive their rental income with no tax deducted if:
their tax affairs are up to date, or
they have never had any UK tax obligations, or
they expect not to be liable to UK income tax.
They must also undertake to comply with SA.
Failure to operate the scheme
If you discover a letting agent, or a tenant paying rent above the de minimis limit to a non-resident landlord, appears to be failing to operate the scheme, you should refer the information to:
HMRC Personal Tax International
Risk Team, S0708
PO Box 203