The non-resident landlords scheme (NRLS) is a tax deduction scheme for taxing UK rental income of non-resident landlords. Where the let is managed by a letting agent, the letting agent must deduct tax from the landlord’s UK rental income and pay it over to HMRC. Where there is no letting agent, the obligation to deduct tax and pay it over to HMRC falls on the tenant if the tenant pays rent of more than £100 per week to a non-resident landlord scheme.
In certain circumstances, the non-resident landlord can apply to HMRC to receive the rental income gross.
A non-resident landlord is a person whose usual place of abode is outside the UK and who receives UK rental income.
Letting agents’ obligations
The NRLS imposes various obligations on letting agents who manage the let on behalf of a non-resident landlord. For the purposes of the scheme, a letting agent is someone whose usual place of abode is in the UK and who acts on behalf of the landlord in connection with the management or administration of the landlord’s UK rental business and who has the power to receive rental income from that rental business or to control the direction of that income. This may include a professional such as an estate agent or a solicitor; however, if they only act in a legal capacity or provide legal services, they do not need to operate the scheme. The letting agent could also be a friend of the landlord.
A letting agent who is required to operate the scheme must register with HMRC within 30 days of the date on which they are first required to operate the scheme. Form NRL4 (available to download from the Gov.uk website) can be used for this purpose. Letting agents who fail to register within the required time frame may be charged a penalty.
Letting agents who have to operate the scheme must calculate the tax due to HMRC for each quarter and pay it over to HMRC’s Accounts Office Shipley within 30 days of the end of the quarter. They must also send a quarterly return (form NRLQ) within the same time frame. The quarters run to 30 June, 30 September, 31 December and 31 March.
Tax is calculated at the basic rate (20%) on the amount of rental income for the quarter less deductible expenses.
The letting agent must also complete an annual return each year (form NRLY) and send it to HMRC PTI division by 5 July following the end of the year. The year runs from 1 April to 31 March for the purposes of the NRLS. Form NRLY is available to download from the Gov.uk website. Penalties may be charged for a failure to make a return or for an incorrect return.
The letting agent must also provide the non-resident landlord with a certificate of the tax liability under the scheme. This too must be provided by 5 July. The tax paid under deduction is set against the landlord’s actual liability.
Tenants’ obligations
If there is no letting agent operating the scheme, the obligation to deduct tax and pay it over to HMRC falls on the tenant if the rent paid by the tenant is more than £100 per week. As for a letting agent, tenants required to operate the scheme must register with HMRC, deduct tax each quarter and pay it over to HMRC, together with a quarterly return, complete an annual return and send it to HMRC, and provide the non-resident landlord with a certificate of tax liability under the scheme.
Rental income paid without deduction of tax
Non-resident landlords can apply to HMRC to receive their rental income gross if:
- their tax affairs are up to date;
- they have never had any obligations to UK tax; or
- they do not expect to be liable to UK tax for the tax year for which the application is made.
The application is made on form NRL1 where the landlord is an individual, form NRL2 where the landlord is a company and on NRL3 where the landlord is a trustee. The forms are available to download from the Gov.uk website.
Partner note:
ITA 2007, ss. 971, 972;
Taxation of Income from Land (Non-residents)
