This article provides guidance for non-resident landlords letting a property in the UK. A non-resident landlord - also known as an expat landlord - is someone who owns UK property but resides outside the country. We’ll explain the importance of the Non-Resident Landlord Scheme (NRLS) introduced by HMRC to make sure that people who rent out UK properties, but themselves are not considered a tax resident in the UK, pay the correct amount of tax on any income received. We’ll also explore the considerations for renting a property abroad, including the obligations of agents and tenants and the need for good overseas landlord insurance cover, and compliance with UK landlord tax and lettings laws.
A non-resident landlord is someone who owns property in the UK and derives rental income from it, but whose usual residence is outside of the UK. Landlords who fall into this category may simply be private individuals but may also be involved in partnerships, trustees or even companies.
His Majesty’s Revenue and Customs (HMRC) define non-resident landlords - an important consideration for taxation purposes – as landlords “who have UK rental income and ‘whose usual place of abode’ is outside the UK”. And they define “usual” as living outside of the UK for more than six months of the year.
As taxable income is earned from these UK based properties, but the owners live abroad, understandably HMRC has introduced rules – The Non-Resident Landlord Scheme (NRLS) – to make sure that those people responsible ensure that the tax due is indeed paid.
These rules apply not just to landlords, but to tenants, real estate and letting agents and come under the legislation in Sections 971 and 972 Income Tax Act 2007, which is supported by the Taxation of Income from Land (Non-residents) Regulations 1995, SI 1995 No. 2902, which apply to rent received on or after 6 April 1996. The primary legislation was in Section 42A Income and Corporation Taxes Act 1988.
Yes, you can. Renting out a property while you live overseas is a good way to safeguard your property (properties are safer when occupied and properly managed) and you will earn extra income, live off, save or pay off a mortgage. However, there are hurdles to overcome: you will need a good reliable agent to arrange tenancies and manage your property, you will need to follow the rules of the Non-Resident Landlord Scheme, you will have to inform your insurers, and if you have a mortgage, you will need the permission of your lender – get permission in writing and be aware, not all mortgages allow letting or non-resident landlords.
Insurance is an important consideration when you rent out UK property from abroad. When a tenant moves into your home a normal domestic policy will not cover all your potential risks. You need a good landlord policy from a reputable insurer which specifically allows non-resident landlords. Total Landlord’s expat landlord insurance is designed to meet the unique needs of non-resident landlords.
If you live overseas while renting out a property in the UK, you’ll need to take out specialist expat landlord insurance for overseas property, to make sure your property is adequately insured. This is because the risks are different when you are out of the country - for example it may not be as easy to carry out regular inspections or maintenance, or respond in an emergency. If you’re unable to visit your property regularly, it is a good idea to enlist a managing agent to look after things for you. At Total Landlord, we offer a comprehensive policy for expats and overseas landlords, whether you’re living abroad temporarily or longer term, and you can choose the level of cover you need based on your specific requirements.
Steve Barnes, Head of Broking at Total Landlord
You might be living on the other side of the world, but as a landlord you still have certain responsibilities, and will need to fulfil the requirements of UK landlord legislation. A professional agent will take care of most of this, but ultimately you are responsible if things go wrong, so make sure you choose an agent that you can rely on to do a professional job and comply with the many private rented sector rules. Read our ultimate landlord guide to choosing a letting agent for more advice on this.
Importantly you need an agent you can trust to handle your money, which should be held in a separate client account and covered by Client Money Protection insurance, properly accounted for and regularly passed on to you, as it’s your rental income. Your agent will also have to follow the rules of the Non-Resident Landlord Scheme when accounting for your rental income.
Self-managing your property from abroad is not impossible, and it may be possible to do this with the help of friends or relatives, but this is not advisable. Things go wrong in tenancies, tenancy laws are complex and it usually takes a knowledgeable person on the ground to manage a rental property safely and within the rules.
Anyone who is a non-resident landlord (whose “normal place of abode” is outside the UK) earning income from the UK needs to register with HMRC. Failing this their letting agent or their tenants are obliged to withhold tax (currently 20%) from the rent. Spouses who are joint owners of property must each register separately under the NRLS and the same goes for trustees, partnerships and companies.
Yes, you have to pay tax on rental income if you live abroad for more than six months in the year.
It is a common assumption among expats that individuals do not pay income tax on UK property income if they are tax resident in another country and reporting the income abroad. This is not correct. Under UK domestic law (and international tax treaty law) the UK has the first call, the right to tax income from UK real estate, even if the income is also subject to tax in another country.
Individuals’ personal tax free allowances apply as usual, deducted from the profit before the normal income tax rates are charged, and where the taxpayer is also liable to tax in a foreign country on their UK property income, they will, under international tax treaty law, be able to claim credit for the UK tax already applied on the same income in their normal country of residence.
Non-resident landlords should consult an accountant / taxation specialist to ascertain the tax position given the rates pertaining at the time in both the countries involved.
Non-resident landlords are obliged to file a self-assessment tax return with HMRC in the usual way by 31 January following the end of a tax year. They should keep careful records of all income and deductible expenses, such as mortgage interest, insurances and repairs/maintenance, agents fees etc.
Following tax rules introduced in April 2015, all non-residents with UK property interests are potentially liable to UK capital gains tax (CGT) on the sale of their properties. They must report to HMRC all relevant disposals within 30 days of sale, whether or not a gain is made. It is possible in theory for a non-resident landlord, who is in the UK for more than 90 days in any one UK tax year, to elect a UK property to be their principal residence. They could therefore obtain substantial tax reliefs from capital gains tax, but this is a high risk strategy as it could make them UK resident for all tax purposes.
Seek professional advice and keep comprehensive records. To claim your maximum deductions from capital gains tax you will need records of all capital expenditure while you owned the property and your purchase and selling costs, including solicitors and estate agents bills.
The primary source of information about taxation of income for non-resident landlords is the Non-Resident Landlord Scheme (NRLS). The scheme regulates the tax on rental income from UK-based properties of landlords who live overseas for more than six months of the year running from 1 April to 31 March each year.
Income must be taxed by HMRC even if the rent is paid directly into an overseas bank account. But because of the obvious difficulties for HMRC to collect the tax under these circumstances the NRLS places a legal duty on letting agents and tenants to withhold the relevant amount of tax before rent is paid to the landlord. The withheld tax must then be paid to HMRC every three months.
This being the case, when overseas landlords complete their UK self-assessment tax returns, any tax that was withheld by the letting agent or tenant can be deducted from their UK tax liability. It is however possible for non-resident landlords who can fulfil certain criteria for HMRC approval to receive income in full and pay their tax themselves to HMRC in the usual way.
UK letting agents working for and receiving rent on behalf of non-resident landlords must register with HMRC’s Non-Resident Landlord Scheme.
This requirement also includes professional service providers who are assisting a letting agent’s letting and rent collection tasks, including estate agents, solicitors and accountants. If non-resident landlords use UK-based friends or family to assist, then they too must register with the scheme.
These people must follow the requirements of the scheme and withhold the relevant amount of tax from the rents they receive on behalf of the non-resident landlord, with the monies to be paid over to HMRC. Professionals can register for the scheme online using form NRL4 or by post, and must do so within 30 days of the start of the tenancy.
Letting agents and other professionals, unless HMRC has advised otherwise, are obliged to send a report to HMRC with a rent information report using form NRLY. They must also account to the landlord by providing certificate NRL6 by 5 July each year.
The law requires tenants to comply with obligations under NRLS if they pay their rent directly to a landlord who has their usual place of abode outside the UK. It also applies when they pay rent to some other intermediary who is not a UK letting agent and when they pay more than £100 a week in rent. Sometimes HMRC will specifically ask a tenant to comply.
Tenants have a legal right to deduct any tax they are obliged to pay HMRC under the NRLS. They also have a right to recover from the landlord any tax they failed to deduct, from their rent.
Unless HMRC have advised a tenant they don’t need to, they need to calculate and deduct from the rent the relevant tax due and pay it to HMRC within 30 days of the end of each quarter, using return form NRLQ. The quarters end on 30 June, 30 September, 31 December and 31 March.
Tenants who are collecting tax must send a report to HMRC each year by 5 July and also provide the landlord with certificate NRL6 each year by 5 July.
All records must be kept for a minimum of four years with rent amounts paid, with dates and all correspondence with the landlord, plus expenses paid, including dates, amounts, descriptions, copies of invoices and receipts.
Tax is withheld at the prevailing rate (currently 20% at November 2023) on rent paid. So, for example if the annual rent is £14,400, £1,200 per month - £240 would be withheld each month and therefore £660 would be due to HMRC each quarter.
Complications can arise very occasionally when allowable expenses paid by the agent or tenant are deducted from the rent, so further guidance must be sought in this case. The letting agent or tenant must be ‘reasonably satisfied’ that the deducted expenses will be allowable in computing the profits of the landlord’s rental business. No deduction will be available for expenses paid by the landlord.
Understandably, when a landlord resides abroad, HMRC must rely on those resident in the UK who are responsible for paying or collecting rent to or on behalf of the landlord to account accurately for and pay the correct amount of tax.
The maximum penalty for failing to provide information is £300. If the failure continues after this, there are penalties of a maximum of £60 for each day the failure continues from the day the first penalty was given.
If you underpay tax due, HMRC may charge interest from the date tax should have been paid to the date it was paid.
HMRC may also charge a penalty if you submit incorrect quarterly or annual returns of up to £3,000. Find more information about penalties for inaccuracies and calculating the penalty.
This article has provided a brief outline of HMRC guidance for non-resident landlords, including the NRLS requirements for letting agents, landlords and tenants. It provided information on calculating and withholding taxes, potential penalties for non-compliance, and the importance of maintaining detailed records.
Readers are encouraged to consult additional government guidance emphasising the need for clarity on their tax obligations for non-resident landlords, letting agents, and tenants.
Further detailed guidance on the NDLS is available in the Government’s “Using the Non-resident Landlords Scheme” If you are a letting agent or tenant you should read this guidance carefully.
More general information about taxation of rental property in general is available in the HMRC Property Income Manual.
If you are a non-resident landlord or an agent or tenant tasked with withholding rent for HMRC, then you must familiarise yourself with these rules. If you are in any doubts, consult a tax expert.
To find out more about non-resident landlord insurance for overseas property, visit the expat landlord insurance page on our website.
