Who is non-resident landlord and what is the non-resident landlord scheme? In this article you will find an explanation for those questions.
Who is a Non-Resident Landlord?
You are considered Non-Resident Landlord, if you spend six months or more in any tax year outside the UK and does not affect whether you are UK tax resident or not. In this case statutory residence test does not apply and it is reviewed where a landlord may stay for more than six months, regardless if it is main residence or not. It is the individual’s “usual place of abode” what is considered. Non-Resident Landlord can be individual, Trustee or company.
What is Non-Resident Landlords scheme?
It is useful system for overseas landlords. You will have to enrol to this system to receive your rent gross, otherwise your agent (or tenant, if you rent your property directly and rent is greater than £100 per week) is required to deduct 20% basic rate tax at source. You can apply directly to HMRC using form NRL1i to receive your rents without any tax deducted, and it will be accepted if:
- Your UK tax affairs are correct and up-to-date
- You have never had any UK tax obligations
- You do not expect to be liable for UK tax
This application does not mean that you are exempt from UK tax on your rental income, but it helps with control and administration and of course is advantageous for your cash flow. A non-resident landlord will still need to complete UK self-assessment tax returns and pay tax, which is due 9 months from the end of tax year.
The non-resident’s tax liability
Letting agents and tenants have to pay any withholding tax to HMRC quarterly. This means at the end of June, September, December and March. It is most likely that the tax liability deducted by letting agent or tenant won’t be the correct amount of tax due by the non-resident landlord. However, where the tax deducted is greater than the liability, the non-resident landlord may claim repayment of any excess. The only expenses which can be deducted are when the agent or tenant are ‘reasonably satisfied’ that it is allowable expense. As it may prove to be incorrect treatment, neither agent nor tenant will be penalised for incorrectly deducting any tax due, however they have to make sure that the returns are submitted correctly and on time.
Eric pays his landlord £1,500 a month rent between April and June 2018. During that time, he also pays £400 for insurance and £250 for plumbing repairs for his landlord.
- His rent was £1,500 x 3 months = £4,500
- Deductible expenses were £650
- The taxable amount is £4,500 - £650 = £3,850
- The tax due is £3,850 x 20% = £770
If you have any UK rental income and living overseas or planning to live abroad, you should register with HMRC for the non-resident landlord’s scheme, you don’t want to miss out on those tax advantages!
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