The Non-resident Landlords Scheme is a scheme for taxing the UK rental income of landlords whose usual place of abode is outside the UK (‘non-resident landlords’). The underlying legislation is at ITA07/S971 and SI1995/2902.
The Scheme requires anyone in the UK who pays rent to, or collects rent for, a non-resident landlord to deduct basic rate tax from the rent. The people it mostly affects are letting agents, which can be anyone from a professional letting company to a friend or relative appointed by the non-resident landlord.
The Scheme applies to let agents regardless of the amount of the rent involved. If the non-resident landlord does not have a letting agent, his tenant must deduct the tax – but only if the rent is more than £100 a week. Before calculating the tax, the letting agent/tenant takes off deductible expenses.are broadly the same, but not as numerous, as the allowable expenses for property income purposes. The Scheme allows non-resident landlords to apply to HMRC to have their UK rent paid to them gross. HMRC approves such applications on the understanding that the non-resident landlords will self-assess at the end of the year to determine whether they have any liability on the rent. HMRC’s approval to receive rent gross does not mean that the rent is exempt income in the hands of a non-resident landlord, who must therefore include the rent in any tax return HMRC sends them.
The requirement on the part of letting agents and/or tenants to deduct tax does not apply to non-resident landlords who have successfully obtained HMRC approval to have their UK rent paid to them gross.
The Non-resident Landlords Scheme: Letting agents
A letting agent is generally a person who:
• has a ‘usual place of abode’ in the UK, and
• acts for a non-resident landlord in the running of their UK rental business, and
• has the power to receive income of the non-resident landlord’s rental business or has control over the direction of that income.
Letting agents’ obligations
Letting agents who have to operate the Non-resident Landlords Scheme must:
• register with Personal Tax International
• account quarterly for any tax to the HMRC Accounts Office, Shipley
• complete an annual information return, where they are required to account for tax, provide their non-resident landlords with a certificate of tax liability each year, and
• keep sufficient records to show that they have complied with the requirements of the Scheme.
The Non-resident Landlords Scheme: Tenants
What tenants are involved?
If a tenant pays rent to a non-resident landlord via a UK letting agent, it is the letting agent and not the tenant who must operate the Non-resident Landlords Scheme.
Tenants of non-resident landlords usually have to operate the Scheme only if:
• the rent they pay is over £100 a week, and either:
• they pay the rent direct to a non-resident landlord, or
• they pay the rent to a person outside the UK, or
• they pay the rent to a person who is not a letting agent in the UK.
However, Personal Tax International may sometimes instruct tenants to operate the scheme even where the rent paid is less than £100 a week. This may happen where a landlord has several tenants and the total rent he receives is over £100 a week.
Tenants who are required to operate the Non-resident Landlords Scheme must:
• notify Personal Tax International
• account quarterly to HMRC Accounts Office, Shipley, for any tax due under the Scheme
• (where they are required to account for tax) provide their non-resident landlords with a certificate of tax liability each year
• complete an annual information return, if appropriate, and
• keep sufficient records to show that they have complied with the requirements of the Scheme.
Tenants have the right to deduct any tax they have to pay under the Scheme from their rent, or from any other money owing to the non-resident landlord. They also have the right to recover from the landlord any tax they have to pay under the Scheme where they did not deduct it from their rent or other money owing.
The Non-resident Landlords Scheme: Compliance
Letting agents and tenants
From time-to-time auditors from Personal Tax International visit letting agents and tenants to ensure that they are complying with their statutory obligations under the Non-resident Landlords Scheme.
The compliance effort on non-resident landlords is centred upon the examination of their Self-Assessment tax returns.
The Non-resident Landlords Scheme: Non-resident landlords
For the purposes of the Scheme, non-resident landlords are persons (including individuals, companies and trustees) who have
• UK rental income, and
• a ‘usual place of abode outside the UK’.
The non-resident landlord’s tax liability
Non-resident landlords can set off the tax deducted from their UK rental income under the Scheme against their own tax bill when they complete their UK Self-Assessment tax return. They can also claim repayment of any excess tax deducted from their UK rental income.
Facility for gross payment of rent
Non-resident landlords can apply to have their UK rent paid gross. They must determine their liability, if any, to UK tax on the rent through self assessment at the end of the year.
The Non-resident Landlords Scheme: Usual place of abode
The Non-resident Landlords Scheme applies to people who pay UK rent to landlords whose usual place of abode is outside the UK.
Individuals have a usual place of abode outside the UK if they usually live outside the UK. But individuals are not regarded as having a usual place of abode outside the UK if they are living outside the UK only temporarily (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 though they may be 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 appropriate). If one or more of the trustees does not have a usual place of abode outside the UK, the trustees are not a non-resident landlord for the purposes of the Scheme.
The Non-resident Landlords Scheme: How non-resident landlords can apply to get their UK rent paid gross
Non-resident landlords can apply to HMRC to receive their rent gross if:
• their UK tax affairs are up to date, conditions
• they have not had any UK tax obligations before they applied, or
• they do not expect to be liable to UK income tax for the year in which they apply, or
• they are not liable to pay UK tax because they have Sovereign Immunity from UK taxation (these persons are generally foreign Heads of State, governments or government departments) etc.
Non-resident landlords who are eligible to apply can do so at any time. This includes applying before they have left the UK or before the letting has started.
What forms must non-resident landlords fill-in?
Non-resident landlords can apply to receive their rent with no tax deducted using:
• form NRL1 if they are individuals
• form NRL2 if they are companies
• form NRL3 if they are trustees
• a letter (if they are immune by sovereign status).
Where are the forms sent?
Non-resident landlords must send their applications:
• to Personal Tax International, or
• in trust cases, to HMRC Trusts, or
• (in the case of most civil servants) to Public Department 1.
The Non-resident Landlords Scheme: What happens when HMRC approval is given?
When HMRC have approved a non-resident landlord’s application to receive UK rent gross, they:
• tell the landlord, and
• authorise the landlord’s letting agent or tenant to pay rent gross.
The Non-resident Landlords Scheme: Appeals against non-approval
Personal Tax International may refuse a non-resident landlord’s application to receive rent gross if:
• they are not satisfied that the information provided in the application is correct; or
• they are not satisfied that the non-resident landlord will comply with its UK tax obligations.
Any appeal must be made in writing to Personal Tax International within 90 days of the date of the notice. If the appeal cannot be settled by agreement between HMRC and the landlord it will be heard by the First-tier Tax Tribunal.HMRC may withdraw approval from a landlord to receive rent gross if:
• they cease to be satisfied that the information provided in the application is correct; or
• they are no longer satisfied that the non-resident landlord will comply with it’s UK tax obligations; or
• the non-resident landlord fails to supply information requested by Personal
HMRC will issue a notice to the landlord withdrawing approval, stating the reason for the withdrawal and the date from which it is effective. HMRC will also notify the letting agent or tenant of the date from which they should start deducting tax from rental income.
The notice will explain how the landlord can appeal against the withdrawal. Appeals should be made in writing to Personal Tax International within 90 days of the date of the notice. If the appeal cannot be settled by agreement between HMRC and the landlord it will be heard by the First-tier Tax Tribunal.