How to register as a non-UK landlord
We appreciate that sorting out tax can be a challenge, particularly if you aren't a UK landlord. We spoke to our tax partners at Fusion Consulting who have put together this handy blog on how to register as a non-resident UK landlord.
The Non-Resident Landlords Scheme (NRLS)
Non-resident landlords (NRLs) are subject to the Non-Resident Landlords Scheme (NRLS). Although the UK does not generally tax non-residents, it does so in respect of 'UK Source' income, and in particular, in respect of rental income from UK properties. However, it should be noted that the government intends that non-resident companies that carry on a UK property business, or have other UK property income will, from 6th April 2020, be subject to corportation tax rather than income tax.
In addition, with effect for disposals on or after 6th April 2019, the charge to tax on capital gains will be extended to non-UK residents that hold any UK land (whether residential or non-residential), and to disposals of interests in certain entities that derive 75% or more of their gross asset values from UK land.
However, without special provisions, such non-resident parties in receipt of UK rental income might avoid the UK tax charge that is due. Accordingly, while there is officially no withholding tax on the payment of the rental income to NRLs, the NRLS requires an effective withholding tax to be deducted by either the tenant or the letting agent, as appropriate, unless the landlord obtains permission from HMRC to receive the rental income gross.
Questions to consider
When looking at the operation of the NRLS, there are several points to consider:
- Will the NRL be granted permission to receive the rental income gross?
- What are the ongoing requirements from an NRL?
- What happens if permission to receive the rental income gross is not given?
It is also worth noting that if the property is commercial, the NRL will need to consider whether they should register for VAT. For VAT purposes, the UK VAT rules will apply as normal. Even though the property owner is not a UK resident, the UK rules still apply because the property is in the UK.
Permission to receive rental income gross
An NRL can apply to receive rents gross by completing one of the following three forms;
- NRL1i - for individuals
- NRL2i- for companies
- NEL3i - for trustees and estates
HMRC will normally grant permission for this if the landlord can demonstrate that:
- They have compiled with the UK tax obligations (i.e they have submitted the tax returns and paid the tax due to date)
- They have never had any UK tax obligations, or
- They do not expect to be liable to pay UK income tax for the year in which the application is made. (Note that in order to qualify under this heading, it is not sufficient that no liability will arise in respect of the let property; there must be no liability to UK income tax at all).
When approval has been given for an NRL to receive rental income gross, HMRC will send a notice of approval to receive rent with no tax deducted to the NRL, together with a separate notice to the letting agents or tenant(s) named on the application form authorising them to pay rent to the NRL without deducting tax.
Authority to pay rent to an NRL with no tax deducted is generally backdated to the beginning of the quarter in which HMRC receives the NRL's application. As the tax year for the NRLS starts on 1st April, the quarters are the three-month periouds that end on 30th June, 30th September, 31st December and 31st March. So if an NRL applies on, say, 20th September, the authority sent to their letting agent / tenant will usually take effect from the preceding 1st July.
Ongoing requirements from a Non-Resident Landlord
The NRL will need to complete and submit annual self assessment tax returns, and ensure that its tax liability is paid on time under the self assessment regime. Note that the charge is under the income tax regime, rather than the corporation tax regime, so that the personal tax self assessment regime / deadlines apply.
There will usually be a number of expenses that will be allowable against the NRL's taxable UK rental income, much as in the same way for a UK-resident landlord. Generally, expenses that are not of a 'capital' nature and which are incurred wholly and exclusively for the purpose of the rental business will be allowed.
Need more advice?
Fusion Consulting can assist with your annual compliance to ensure you do not receive any unnecessary statutory penalties for non-filing to HMRC. If you have any tax queries please contact Fusion on 00442038417018 or email firstname.lastname@example.org. Alternatively your LiFE contact can also put you in touch.