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Non-Resident Landlord Scheme in the UK
2022-01-06

     In addition to companies and the worldwide rich people, more and more people come to the UK for investing in real estate market. Among these investors, many choose to buy a property to let for rental income. However, some are not aware that they must pay tax on such income. They often did not find that they had violated the relevant laws until they received the fine notice sent by HM Revenue and Customs(HMRC).

    The British government has specific regulation that non-resident landlords who live abroad for more than six months of the year must pay tax on any income they get from renting out property in the UK. If the landlord is a company or trustee, the rules about their usual place of abode apply. The tax is collected using the Non-Resident Landlord Scheme. However, you should note that overseas landlords should first complete their tax report. Tax report is not equal to tax payment. It is likely that landlords will not need to pay because of various expenses deduction.

    According to HMRC, the first £ 1,000 of your income from property rental income is tax-free, and you must report your rental income on a Self-Assessment tax return if it’s £ 2,500 to £ 9,999 after allowable expenses or £ 10,000 or more before allowable expenses.

    The specific amount of rent tax depends mainly on the rent income, property cost, and relevant expenses incurred for renting out the property.

Time of rental tax report

    For overseas landlords who have not reported tax in the previous period, they need to register on the HMRC official website first. The registration deadline is before October 5 in the tax year in which the rental income is generated. Once the registration is successful, you can submit your tax return by mail or online. Mail the paper tax return no later than October 31 of the tax year. Online declaration shall not exceed January 31 of the next tax year at the latest.

Two ways of paying rental tax

    At present, tax on property rental is mainly levied through the Non-Resident Landlord (NRL) Scheme. There are two ways:

  1. Collect all the rent, and then pay the tax by self-assessment.

    This method usually requires the review of HMRC. You need to apply to HMRC first, fill in a form called NRL1i, and then send the form back to HMRC. This form can also be filled in online. If your application is approved, you need to report the rental income in the self-assessment tax return. At the same time, HMRC will inform your housing agent or tenant not to deduct taxes from the rent. HMRC will not approve your application unless you have been paying taxes on time.

  1. Housing agents and tenants pay taxes on behalf of the landlord.

    This means that when the housing agent or tenant pays the rent to the overseas landlord, he first deducts the tax that the landlord should pay in advance, and then pay the remaining rent to the landlord. This method of paying tax on behalf of the landlord often leads to excessive payment. You need to ask HMRC to return the overpaid tax later. HMRC has different requirements for tenants and housing agents to pay taxes. Generally speaking, if the tenant pays more than £ 100 a week, it must register with the HMRC and deduct the tax from the rent. If the overseas landlord hands over the rent to the housing agent, no matter how much the rent is, it must be registered.

    When paying tax, the agent needs to fill out a form called NRL4i, and the tenant needs to write to HMRC, fill in the names and addresses of himself and the landlord, and declare that he wants to participate in the NRL Scheme.

Tips for rental tax

  1. If the property in the UK is not in your namealone, but jointly owned with your spouse, both of youhave to make tax returns. In addition, if there is no special notice to the British tax office, the tax office generally recognizes the income of both parties according to the proportion of half of each person, not according to the proportion of real estate actually owned by you and your spouse.
  2. HMRC will impose a fine on those who fail to pay taxes on time. However, if the overdue tax is paid before HMRC sends the penalty notice, the penalty will be reduced. When making up the overdue tax, HMRC will give you a public reference number, and then you will have 3 months to repay the unpaid taxand fines.
  3. Many overseas residents will leave their properties to their friends or children, and the rent will be collected by them. In this case, they still can not apply for personal allowance in the UK, because only thepropertyowner is qualified to be the ultimate beneficiary of rent. For children studying abroad, you can consider putting the property under their children's name.
  4. Some overseas landlords have heard that they can reduce the tax pressure by paying propertycustody fees to their relativesor friends", that is, taking out part of the rent income as management fees to them. Although the HMRC has not explicitly prohibited this behavior, considering that the custody fees should be determined by reference to the market price, if you have set too outrageous management fees, Your self-assessment report is likely to fail, and even cause the investigation of the tax office.