Taxation for Non-Resident Landlords: Renting Property While Abroad (2024)

Living outside of the UK does not necessarily exempt individuals from paying taxes in the UK. Anyone with income sources from the UK may need to pay tax in the UK, irrespective of where the income originates. However, the tax treatment varies depending on the income sources. For example, someone with UK employment income might not need to file tax returns but must still pay tax. Similarly, the tax rules differ for income from land and buildings in the UK.

If you plan to move abroad while renting out a property in the UK, it is crucial to consider the taxes you will need to pay as a non-resident landlord, such as withholding tax. This article will explore these obligations in detail, beginning with how HMRC defines non-resident landlords.

Non-Resident Landlords

A non-resident landlord is an individual with UK rental income whose usual ‘place of abode’ is outside the UK. An individual’s ‘place of abode’ is where they generally reside. If someone is absent from the UK for longer than 6 months, they are generally considered to have a usual place of abode outside the UK. If this person also has UK rental income, they are classified as a non-resident landlord.

The term non-resident landlord is not restricted to individuals. Any entity that meets the criteria can be considered a non-resident landlord, including companies, trustees or even partnerships.

For companies, a company with UK rental income is considered a Non-Resident Landlord if:

• The company was incorporated outside the UK, or
• The company’s main office or other place of business is outside the UK

Personal Allowance and Tax Rates: Non-Resident Landlords

UK Residents benefit from a Personal Allowance of £12,570 per year. Someone with earnings below the personal Allowance does not need to pay tax. However, this advantage may not be available to non-UK residents. Non-residents may be able to claim the personal Allowance if any of the following conditions apply:

• You’re a British citizen
• You’re a citizen of a European Economic Area (EEA) country
• You are resident in a country whose double-taxation agreement with the UK includes the provision

The tax rates for non-residents are the same as those for UK residents, ranging from 0% to 45%.

Non-Resident Landlords Scheme (NRLs)

Non-Resident Landlords Scheme (NRLS) is an arrangement requiring the letting agents or the tenants of non-resident landlords to withhold 20% tax on the property income. The letting agents or the tenants subsequently pay the tax to HMRC at the end of each quarter. For the purposes of NRLS, a tax year runs from 1 April to the following 31 March.

Under the NRLS, letting agents must:

• Register with HMRC within 30 days of the date on which they need to operate the Scheme,
• Provide a quarterly return and payment,
• Provide an annual return and payment and
• Provide their landlords with a certificate, as shown below.

The letting agents must calculate the tax liability for each quarter of the rental income received after deducting the allowable expenses. All the rental income should be considered regardless of the recipient of the rent.

The letting agents can deduct anything that is not ‘capital’ in nature to calculate the tax to be withheld. Expenses that are incurred wholly and exclusively for the purposes of the rental business, such as cleaning costs, insurance costs, advertisem*nt costs, accountancy expenses, etc., can be deducted.

The tax calculation must be done on a cash basis, meaning the income is accounted for in the quarter it is received. For instance, if a cheque is received in quarter one but is dishonoured and then received again in quarter two, the rental income should be included in the tax calculation for quarter two, not quarter one. Once the tax is calculated, it must be paid within 30 days after the end of the quarter.

Can Non-resident landlords receive the full rent without tax deduction?

Non-resident landlords can apply to receive their rental income in full, i.e. with no tax withheld, if they wish to do so. The application is sent via the NRL1i if the landlord is an individual, NRL2i and NRL3i if the landlord is a company and a trustee, respectively.

HMRC decides whether to approve or reject the application at its discretion. Generally, HMRC approves landlords:

• Whose UK tax affairs are up to date,
• Who have never had any UK tax obligations, or
• Who do not expect to be liable to UK tax for the tax year in which the application is submitted.

Following is a sample of the NRL1i form that non-resident landlords must submit to receive their rent with no tax deducted.

If the Non-resident landlord is a company, they must submit an NRL2i form instead. For trustees, the form to be submitted is the NRL3i form.

Self-Assessment Tax Return as a Non-Resident Landlord

If HMRC approves the application to receive the rent in full, non-resident landlords must declare their income in the Self-Assessment Tax Return. As non-residents cannot use HMRC’s online services, individuals must send their tax returns by post or get help from a professional accountant who can use commercial software to file tax returns.

Someone who wishes to miss the tax return deadline (31 January of the following year for online filers and 31 October of the same year for individuals sending a tax return by post) may be fined.

In contrast, someone whose rental income is below the personal Allowance but on which the tax is already deducted can claim the overpaid tax with HMRC. To do so, they must send the form R43 (shown below) to HMRC.

Conclusion

Understanding the Non-Resident Landlord Scheme is crucial for those renting out UK property while living abroad. This Scheme requires non-resident landlords, which can include individuals, companies, trustees, and partnerships, to pay tax on their rental income, with letting agents or tenants withholding 20% of the rent and paying it to HMRC each quarter.

Non-residents may not benefit from the UK’s personal Allowance unless they meet specific criteria, but they can apply to receive their rent without tax deduction if their UK tax affairs are in order. If approved, they must declare their income via a Self-Assessment Tax Return. Staying informed and compliant helps avoid legal issues and ensures proper management of UK rental income while abroad.