How does the Non-Resident Landlord (NRL) scheme work in the UK?

Full answer

The Non-Resident Landlord (NRL) scheme ensures that UK income tax is collected on rental income paid to landlords who live outside the UK for six or more months in a tax year. Who is affected? A landlord is treated as non-resident for NRL purposes if they are absent from the UK for 6 months or more in a tax year -- even if they are UK-domiciled or UK-citizen. Residency for NRL purposes is not the same as Statutory Residence Test residency, though they often align. Deduction by agents and tenants If a letting agent manages the property, they must deduct 20% basic rate tax from the rental income before paying it to the landlord, and account for this to HMRC quarterly. If there is no letting agent and the rent is GBP 100/week or more, the tenant must make the deduction. Tenants paying less than GBP 100/week are generally not required to deduct tax. Applying for gross payment -- NRL1 form A non-resident landlord can apply to receive rents without tax deduction using form NRL1 (for individuals), NRL2 (for companies and trustees), or NRL3 (for trustees). HMRC grants approval if the landlord is up to date with UK tax compliance. Once approved, HMRC notifies the agent or tenant to stop making deductions. Annual NRL6 return Agents who have made NRL deductions must file an annual NRL6 return with HMRC, summarising all deductions made from each non-resident landlord. This mirrors information on the landlord's Self Assessment return. Self Assessment obligation Approval to receive gross rents does not remove the obligation to file a UK Self Assessment return. The landlord must declare all UK rental income, deduct allowable expenses (but note: since April 2020, finance costs for residential landlords are restricted to a basic-rate tax credit), and pay any tax due by 31 January. Double taxation treaties The UK has double taxation agreements with many countries. These generally give the UK the right to tax UK rental income, but the landlord can claim credit in their home country for tax paid in the UK. Professional advice is important for landlords with complex cross-border arrangements. Non-resident SDLT surcharge Non-UK resident purchasers also pay a 2% SDLT surcharge on top of the standard rates (including the 3% additional dwelling surcharge if applicable) when buying UK residential property.

Try the calculator