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Posted 24 Jan 2024

Non Resident Landlord Scheme: Renting Out Property While Abroad

landlord / overseas / tenancy

Here's how the non-resident landlord scheme works when you live abroad but want to rent out a UK property.

Please note that this article is for general guidance purposes only and does not constitute any accounting or tax advice. Seek specific professional advice on your tax issues from a qualified accountant or tax advisor to ensure compliance with UK law.

If you live abroad, own a UK property and want to rent it out, then you need to know how the non-resident landlord scheme works.

When you’re a landlord abroad, tax can be confusing. I rent out lots of properties owned by landlords living overseas, so let me outline what you need to know.

Plenty of people live abroad while renting out a property in the UK. Approximately 5% of homes nationwide are owned by overseas landlords, according to Property Reporter, rising to 11% in London.

So there are many people in similar circumstances! In this guide, I’ll explain the overseas landlord tax obligations for the UK.

Non-resident landlord tax requirements

So, first things first – do you pay tax on UK property income, if you live in another country?

Yes, you do. If you’re a tax resident in another country, that doesn’t exempt you from paying tax on your rental income for a UK property.

Depending on where you live overseas, there is usually a double taxation treaty with the UK to ensure you don’t pay the same tax twice – more on this later.

However, the way that HMRC should receive your UK rental income tax is different than for landlords living here. I’ll explain that shortly.

Are you technically a non-resident landlord?

If you live abroad for most of the year, but also spend a considerable amount of time living in the UK, then you might not be sure if you count as a non-resident landlord.

The government counts you as a non-resident landlord if your ‘usual place of abode is outside the UK’ – but for how long?

According to the HMRC property income manual, if you live outside the UK for more than six months per year, you are a non-resident landlord. You can be a UK resident but still have a usual place of abode outside the country.

Things become more complicated for jointly owned properties. In this case, each landlord is treated separately, so you can have a UK resident landlord and a non-resident one for the same property.

If you count as a non-resident landlord, then you pay tax on your UK rental income through a dedicated process. 

The Non-Resident Landlord Scheme

That procedure is called the Non-Resident Landlord Scheme (NRLS). The government established it due to the challenges of tracking non-resident landlords and fears over illegal tax evasion.

Applying to rental payments since April 1996, the rules are in the Taxation of Income from Land (Non-residents) Regulations 1995, enforced by the Income Tax Act 2007.

Here’s how the NRLS works:

  • Tax is deducted from non-resident landlords’ UK rental income before they receive it
  • HMRC receives the income tax
  • The tax is accounted for each quarter – every three month period ending on 30 June, 30 September, 31 December and 31 March

The theory is that collecting the tax at source is a more reliable way for HMRC to receive it from landlords living overseas.

However, non-resident landlords can apply to HMRC and ask to pay the tax due on rental income the usual way. In other words, you could still receive rental income with no tax deducted and then pay it via self assessment instead.

As an individual, you apply for this via form NRL1. Make sure you use the right NRL form.

HMRC may approve your NRL1 form if:

  • Your tax affairs in the UK are up to date
  • You have never had any UK tax obligations
  • You do not expect to be liable for UK tax that year

Even if HMRC takes the tax on your rental income each quarter, as a landlord you are still required to submit a self assessment tax return.

This is the case even if you don’t think you owe any more tax – of course, it’s also possible that you have under or overpaid.

Any tax you have already paid under NRLS is deducted from your final self assessment. The deadline to pay your self assessment bill is 31 January!

Double taxation treaties

If based somewhere that taxes your global income, you may be worried about the risk of tax on the same rental income in two countries – the UK and the country where you live.

But that won’t be the case if you live in a country that has a double taxation treaty (DTT) with the UK.

DTTs typically define which country has primary taxing rights over certain types of income and how to allocate taxes between the two.

Many countries have a DTT with the UK – such as European ones and also the likes of:

  • US
  • China
  • India
  • Pakistan
  • Mexico
  • Nigeria
  • Japan

Check the list of UK government tax treaties for the full list. If you don’t live in a country that has a DTT with the UK, it’s best to speak to an accountant to get clarity on your specific situation.

Non resident landlord UK tax rates

In the UK, at the time of writing, you have a tax-free personal allowance of up to £12,570 and after that, there is a sliding scale.

The tax on your additional income up to £50,270 is 20%, then between that and £125,140 it’s 40%.

If your income is over £125,140 the tax rate is 45% and you don’t get a personal allowance for the tax year.

Also check the government’s trading and property allowances to see if you can receive the first £1,000 of your rental income tax-free.

If you’re not using a letting agent…

If you manage the property yourself from overseas and tenants pay rent directly to you, they also have a role to play in the NRLS.

That’s the case unless the tenant isn’t paying more than £100 a week in rent. This is unlikely as the average monthly rent is £2500 in London and £1190 for the rest of the UK, according to The Guardian.

They need to deduct tax from the rental payments and send them to HMRC each quarter. Tenants should also provide you with a certificate of tax liability (form NRL6) each year.

They also need to do this for any other non-rental payments to you unless they count as deductible expenses. Tenants can inform HMRC that they need to use the NRLS by filling in the NRLY information return form.

Speaking of overseas landlords, if you’re a prospective tenant from outside the UK, here is my recent guide on what to expect when moving to London as an overseas tenant.

… And if you are using a letting agent

As you might expect, many overseas landlords would prefer not to put that responsibility on their tenants.

This is one of many reasons why they use an estate or letting agent instead – someone with a local presence who can handle the day-to-day management of the property.

If you’re an overseas landlord using an agent to manage your property, they can handle the withholding of tax under the NRLS for you.

The agent pays the income tax to HMRC each quarter and provides the landlord with the aforementioned liability certificate once a year.

Summary: the Non-Resident Landlord Scheme

If you rent out a UK property while living abroad for more than six months per year, HMRC sees you as a non-resident landlord. That means you still need to pay tax on your rental income, but the process is different in comparison with UK-based landlords.

Instead of paying the tax via an annual self assessment, you pay it quarterly under the NRLS – unless you successfully apply to pay it using self assessment.

As a landlord you are still required to submit a self assessment tax return, even though the government receives tax payments on your rental income each quarter through the NRLS.

But you won’t pay the tax twice and if you overpay, you can ask for the refund. Also, many countries have double taxation treaties with the UK ensuring that you won’t pay the same tax twice.

There’s plenty to think about when you’re a landlord managing your own property. I have written some guides to help, such as how to rent out your house or flat.

You also need to carry out the Right to Rent check and other tenant checks, know how a break clause works and try to improve your EPC rating – plus many more responsibilities!

That’s why, particularly if you’re based abroad, it’s a lot easier to use a trusted property agent to handle everything on your behalf. Fine Living not only has a wide range of beautiful properties in our portfolio, but I have vast experience of renting out properties for overseas landlords.

I hope you found this guide helpful. Please don’t hesitate to get in touch with any queries, whether they’re about non-resident landlord tax on rental income in London, or any other property-related questions!

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