Non-Resident Landlord Scheme

The Non-Resident Landlord Scheme was introduced in 1995 by the UK government to ensure that non-resident landlords pay the correct amount of tax on their rental income. Under this scheme, non-resident landlords must register with HM Revenue and Customs (HMRC) and receive approval to receive rental income without tax being deducted at the source.

Criteria for Eligibility

To be eligible for the Non-Resident Landlord Scheme, landlords must meet the following criteria:

• They must live outside the UK for at least six months of the tax year.
• They must own a property in the UK that is being rented out.
• They must receive rental income from the UK property.
• They must not have any other taxable income in the UK.

Benefits of the Scheme

The Non-Resident Landlord Scheme offers several benefits to non-resident landlords, including:

• No tax deducted at source: Non-resident landlords approved for the scheme do not have tax deducted from their rental income at source. This means they receive the full rental income and can manage their tax affairs more efficiently.
• Reduced tax liability: Non-resident landlords who are approved for the scheme may be eligible for certain tax reliefs and allowances, which can reduce their overall tax liability.
• Simplified tax reporting: Non-resident landlords approved for the scheme must only file a tax return once a year, simplifying their tax reporting obligations.

Examples of How the Scheme Can Be Advantageous: Let’s say that a non-resident landlord earns £10,000 in rental income from a UK property. If they are not approved for the Non-Resident Landlord Scheme, they would have 20% tax deducted at source, leaving them only £8,000. However, if approved for the scheme, they would receive the full £10,000 and could claim certain tax reliefs and allowances, reducing their overall tax liability.

Registration Process

To register for the Non-Resident Landlord Scheme, non-resident landlords must follow these steps:

• Complete the NRL1 form: Non-resident landlords must complete the NRL1 form along with 64-8 and submit it to HMRC. This form includes personal details, information about the UK property, and details of any agents acting on the landlord’s behalf.
• Wait for approval: HMRC will review the NRL1 form and either approve or reject the application. Approval can take up to six weeks.
• Provide details to letting agents: If the application is approved, the non-resident landlord must provide details of their approval to any letting agents who manage the UK property.

Common Mistakes to Avoid During the Registration Process

Non-resident landlords should avoid the following common mistakes during the registration process:

• Failing to provide accurate information on the NRL1 form: Non-resident landlords must provide accurate and up-to-date information on the NRL1 form. If you fail to do this, your application may be delayed or rejected.
• Not providing details to letting agents: Non-resident landlords must provide details of their approval to any letting agents who manage the UK property. Failure to do so can result in tax being deducted at source.

Responsibilities of Non-Resident Landlords Under the Scheme

Non-resident landlords who are approved for the Non-Resident Landlord Scheme have several obligations, including:

• Filing a tax return: Non-resident landlords must file a tax return once a year, reporting their rental income and any allowable expenses.
• Paying tax on rental income: Non-resident landlords must pay tax on their rental income at the appropriate rate.
• Keeping records: Non-resident landlords must keep accurate and up-to-date rental income and expenses records.

Consequences of Non-Compliance

Non-resident landlords who do not comply with the obligations of the NRLS may face the following consequences:

• Penalties and fines: Non-compliance can result in penalties and fines imposed by HMRC.
• Tax is deducted at source: Non-compliance can result in tax deducted at source, reducing the non-resident landlord’s rental income.
• Estimated Tax: HMRC can estimate tax payable, and if left for too long, it cannot be amended after four years. 
• Legal action: In extreme cases, non-compliance can result in legal action against the non-resident landlord. Therefore, non-resident landlords must comply with the obligations of the scheme to avoid any penalties or legal actions.

If you are an non resident landlord and need help with your tax planning or tax return, reach out to our tax advisors for a consultation to determine the most suitable tax planning for your specific needs.