The UK’s Non-Resident Landlord Scheme (NRLS) is a tax system designed for landlords who live outside the UK but earn income from renting out property within the country. If you’re an overseas landlord, it’s important to understand how the scheme works, your tax obligations, and how to stay compliant with UK tax laws.
In this guide, we will explain the key aspects of the Non-Resident Landlord Scheme, how it applies to you as an overseas property owner, and how Fraser Bond can assist you with tax and property management.
The Non-Resident Landlord Scheme is a tax collection mechanism introduced by HM Revenue and Customs (HMRC). It requires letting agents or tenants (in some cases) to deduct basic rate income tax (currently 20%) from the rental income of landlords who live abroad for more than six months of the year. The tax is deducted before the rent is paid to the landlord and sent to HMRC.
The scheme applies to individuals, companies, and trusts who are classed as non-residents for tax purposes but receive rental income from UK properties.
A non-resident landlord is someone who:
Even if the landlord spends time in the UK, as long as they are out of the country for six months or more, they are considered non-resident under this scheme.
The Non-Resident Landlord Scheme requires either the letting agent (or the tenant if there is no agent involved and the rent exceeds £100 per week) to deduct tax at the basic rate from the landlord’s rental income before paying them.
If a letting agent manages the property, they are responsible for withholding the basic rate of tax from the rental payments and sending it directly to HMRC each quarter. They will issue the landlord with a certificate showing the amount of tax deducted.
If there is no letting agent and the tenant pays more than £100 per week in rent, the tenant becomes responsible for deducting the tax and passing it to HMRC. This arrangement is less common but may apply for private lettings without an agent.
Landlords who do not wish to have tax automatically deducted from their rental income can apply to HMRC for approval to receive their rent gross (without tax deductions). To qualify, the landlord must show that:
You can apply using HMRC’s NRL1 form (for individuals), NRL2 form (for companies), or NRL3 form (for trustees). Once approved, the landlord can receive the full rental income without deductions and must self-assess their tax liability at the end of the tax year.
Even if you qualify to receive rent without automatic tax deductions, non-resident landlords are still responsible for reporting and paying tax on their UK rental income through Self-Assessment.
All non-resident landlords must declare their UK rental income on their annual tax return. If you receive rent gross, you are required to calculate any tax owed and pay it directly to HMRC. The tax is usually due by January 31 following the end of the tax year (April 5).
Non-resident landlords, like resident landlords, can deduct allowable expenses from their rental income to reduce their tax liability. These include:
If you are a non-resident landlord and pay tax in both the UK and your country of residence, you may be eligible for tax relief under a Double Taxation Agreement (DTA). These agreements are in place to prevent the same income from being taxed twice, and you may be able to claim a tax credit or offset the tax paid in the UK against your foreign tax liability.
Failure to comply with the Non-Resident Landlord Scheme can lead to penalties. Letting agents and tenants are required by law to deduct tax from non-resident landlords' rental income. If they fail to do so, they may be held liable for any unpaid tax, interest, or penalties. Similarly, non-resident landlords who do not report their rental income or fail to pay their tax liabilities may face fines or other legal consequences.
Managing UK rental property from abroad can be challenging, especially when it comes to complying with tax regulations. Fraser Bond offers comprehensive services to non-resident landlords, ensuring they remain compliant with the Non-Resident Landlord Scheme and UK tax laws. Our expert team can assist with:
By partnering with Fraser Bond, non-resident landlords can enjoy peace of mind, knowing that their UK property investments are well-managed and that all tax obligations are being met.
Understanding the UK’s Non-Resident Landlord Scheme is essential for property owners living abroad. With Fraser Bond's expertise, non-resident landlords can stay compliant with tax regulations while maximizing their rental income and property investment returns. Contact Fraser Bond today for personalized advice and services tailored to your needs.
