If a landlord is based abroad for more 6 months in a year, he must pay tax on earnings from renting UK property. In case of Trustee or company landlords, the rules about usual place of residence apply.

The Non-resident Landlord Scheme is used to collect the tax.

Applicability of scheme

If you are:

• A letting agent
• Tenant by whom more than £100 per week is paid in rent, and whose landlord is living outside UK

A letting agent must operate the Non-resident Landlord Scheme regardless of amount of rent he collects unless HMRC allowed the landlord in written to receive the rent without tax.

Tax is payable on the landlord’s portion of rent if property is jointly owned.

Under the scheme, a letting agent is the person who:

• assist the landlord manage their UK rental property
• Receive their rental or command where it goes
• Stays in the UK for longer than 6 months in a year

A letting agent could be an estate agent or accountant, solicitor, or even a landlord’s friend. If you provide legal services or advice to landlords, then you are not a letting agent.

Rent income can be money that is received for many items, like:

• Letting residential, commercial, furnished or unfurnished building or land
• Furniture use in a leased home
• Certain lease grants
• Rights for sports like permits for shooting and fishing
• waste burial and storage on the land permission
• Permitting property use by others, like a movie crew make payment to shoot inside someone’s home
• Grants to assist with allowed expenditure like repairs
• schemes of enterprise investment
• Houseboats and caravans that cannot be moved
• Insurance policies to cover rental payment defaults.
• Charges for any other services

What a tenant should do  

Get registered with HMRC under the Non-resident Landlord scheme and do tax deduction from rental.

Details to be provided:

• Your name
• Address
• Addresses of landlords

Registration is also needed to be done with HMRC if payment is made to a representative living in UK, of your landlord, such as a friend, or family member (not a letting agent)

If HMRC has informed you in writing that rent can be received by the landlord without tax deduction, you don’t have to deduct it. However, you still need HMRC registration and an annual report.

What you should do as a letting agent  

The Non-resident Landlord scheme must be followed regardless of the amount of rent you received, except if HMRC has informed you in writing that the landlord is eligible to collect the rent without tax deduction. Registration with HMRC and annual report might still be required.

For registration under the scheme, you have to fill out form NRL4i

Tenant-finders

Tenant-finders don’t need to pay any tax as per the Non-resident Landlord Scheme, if they charge their own fees for finding tenants from rental collected or:

• Rent is not collected for more than three months
• The tax is not more than £100

Example 1.

Adam discovers a tenant to rent a property at £600 per monthly. To get her fee, she collects two months rent. The landlord then receives the rent from the tenant. After fees and expenses have been deducted by Adam, the tax due is £70. Adam does not need to run the Non-resident Landlord scheme.

Example 2

Jack discovers a tenant to rent a property at £2,500 per year. John receives six months rent, from which he collects his fee and make payments for repairs and insurance. On the rest, tax due is only £30, but Jack has to operate the Nonresident Landlord Scheme because he collects more rent than three months.

Calculating the tax that you must pay  

Add the rent for the three months, any uncleared cheques and any payment made to someone on landlord’s request. to calculate the tax.

To calculate the net rent, subtract allowed expenses that you have incurred in the quarter. Tax Payable at basic income tax rate on net rent.

HMRC might check whether payment of correct amount has been done by you. Late payments may result in interest being charged.

Example

Jill was a tenant and paid £1,600 rent between 30 June and 30 September. The following was the breakdown:

• For electrician services, £250 (payment done by letting agent).
• £200 to repay the landlord’s mortgage
• Paid to landlord directly: £1,150

electrician services are allowed to be deducted and are excluded from the computation of the taxable amount.

The tax is payable on £1,350 @ basic 20% rate. i.e. £270.

Jill can recover the money from the rental payments to landlord or other dues.

Making a payment  

Payment must be made within thirty days after the end of each quarter.

When should you send your reports  

Each year, you must submit a report to HMRC by 5 July and the landlord using form NRLY.

Your landlord must also be provided with a NRL6 certificate each year by 5th July.

Records to be maintained  

Maintain records for at least 4 years.

• Rent you have collected or paid (if you are a tenant), along with dates and amounts
• If you have contacted the landlord about their usual place of residence, Communication records with them
• List of all expenses with dates, amounts, and descriptions. Also, copies of receipts and invoices.

Non-UK company landlords  

Even though profits from a property business in UK of a company, non-resident in UK will be subject to Corporation Tax, the scheme will still operate w.e.f. 6 Apr 2020