You don’t have to be a full time expat to fall under the tax rules of non resident landlord scheme.
Although most people would take non-resident as a landlord living permanently outside the UK, the scheme follows a different logic.
Strict rules decide how any income tax on property rental profits is paid, so getting the non-residence call wrong can mean he tax man imposing some heavy fines.
Under the NRLS If you rent out a home in the UK and spend more than six months at a time abroad, then you are a non-resident landlord.
Are you a non-resident landlord?
The scheme talks about where you are living for that six months absence from the UK rather than tax non-residence.
So two types of landlords letting homes in the UK are captured by the scheme:
- Non-residents who never or rarely come to the UK – many of whom are expats who have their main home overseas
- UK residents spending long periods abroad, typically with a holiday home where they spend much of their time. This test also nets expats on assignment who live abroad for a year or two and rent out their home while they are gone
Don’t worry if you are on a long holiday or world cruise, because although you are away from home, you still usually live in the UK, so do not come under the rules.
A word or two about rent
Tax has some quirky rules about what comes under rent.
Everyone realises money received for letting out a home, holiday let or commercial property is rent, but the law adds a few more instances:
- Income from static caravans or house boats
- Money from services like gardening or cleaning provided for tenants
- Payments for sporting rights, such as fishing and shooting
- Income from letting others use the land, such as car boot sales or film crews using a home as a set
The list is not exhaustive…
What happens if you belong to the NRLS?
As an absent landlord, HM Revenue & Customs is worried you might not pay the correct income tax on any rental profits.
To make sure you do, your tenants or letting agents must deduct income tax from the rent they pay you or collect for you.
They must then account for the money and pass the full amount on to HMRC.
The rule applies to tenants paying rent of £100 a week or more and all letting agents.
NRLS also has some strict rules about who is a letting agent. Besides the usual professionals, anyone living in the UK for six months or more who helps a non-resident landlord run their property business is an agent as well.
That could be family, a friend or a helpful neighbour.
Tenants and letting agents face a fine of up to £3,000 for filing incorrect NRLS returns to HMRC.
Why join the NRLS?
If a non-resident landlord signs up to the NRLS, the tax man will give written permission not to deduct income tax on the payment of rent.
Instead, the landlord files a self-assessment tax return each January to account for any income tax due on rentals. The return is made on a special section of the property pages that go with the corer return.
Companies account for the cash on a corporation tax return.
Signing up for the NRLS then means rents are paid gross, helping cash flow because landlords can hold on to the tax until the self-assessment or corporation tax returns are filed.
Joining is not an option if you pass the test to become a non-resident landlord. Failing to register can come with a fine.
Applying for non-resident landlord status
Non-resident Landlords must file a Form NRL1 to receive rents without tax deducted by tenants or letting agents.
HMRC will want to know:
- How long and where a landlord will live outside the UK
- Personal data, such as a National Insurance numbers
- Contact details
- Information about other properties owned and rented out in the UK
To find out more about the scheme, download HMRC’s guidance notes, although the notes give detailed information about the scheme for letting agents and tenants, much is relevant to landlords as well.