Non-Resident Landlords and Tax

Whether landlords live in the UK or overseas, they need to pay tax on your rental income of a property in the UK.

If landlords live overseas abroad for 6 month or more per year, they are classed as a ‘non-resident landlord’ by HMRC even if they are UK resident for tax purposes.

https://www.gov.uk/tax-uk-income-live-abroad/rent

As per the link above, there are two options to calculate and pay this tax.

Option 1 – Default option – Tax deducted at source

By default, deductions must be made by the letting agent (or the tenant if a letting agent is not in placed) in accordance to the Non-Resident Landlord (NRL) scheme.  The deductions is 20% of the balance of any income (rent) less any deductible costs (fees, maintenance costs, etc).  Please refer to the link below.

https://www.gov.uk/guidance/paying-tax-on-rent-to-landlords-abroad

Deducting tax at source simply helps landlords to regularly pay an approximate amount towards the yet not known tax liability as the income is received.  In many cases, this is not the correct amount that will be due at the end of the tax year since the calculation above does not take into consideration matters, including (but not limited to):

• Any personal tax allowance that landlords may have.
• Correct costs:  Landlords may have a mortgage against the property.  The costs of interest of this mortgage can be deducted from the tax liability.
• High tax payer: if the landlord is a high tax payer, the actual tax liability will be higher.
• Any double-taxation treaty in place between the landlord current place of residence and the UK.  This may increase or decrease the tax liability.
• Any complex situation: Landlords with complex situation should seek specialist tax advice.

Shortly after the end of the Tax Year (i.e. after 5th April of each year) the letting agent will issue a NRL6 to the landlord.  This is a Non Resident Landlord (NRL) Certificate that will state how much tax the letting agent has deducted at source and transferred to HMRC.

Option 2 – Exemption to pay tax at source (but tax needs to be paid nevertheless)

Alternatively, landlords can apply to HMRC for an exemption, so that the letting agent (or the tenant if no letting agent is in place) doesn’t have to deduct tax at source.  This is Martin & Co Aberdeen preferred option.

If landlords wish us to stop deducting tax at source, they can simply complete a NRL1 online.  They should use our NRL number (NA042258 - Martin & Co Aberdeen) when registering.  As soon as we receive confirmation of the exemption by HMRC we will start paying the rent in full to the landlord.  Please refer to link below.
https://www.gov.uk/government/publications/non-resident-landlord-application-to-have-uk-rental-income-without-deduction-of-uk-tax-individuals-nrl1

If granted, the letting agent will stop deducting tax at source once an exemption letter has been received from HMRC. For the avoidance of doubt, this will be an exemption to deduct tax at source, however the tax liability will remain.

Self Assessment Tax Return (and final payment or refund)

Regardless of the option chosen, Non-Resident Landlords are required to submit a Self Assessment Tax Return (unless HMRC tells them not to).  This Self Assessment Tax Return will determine the actual amount of tax due.  If tax was deducted at source by the letting agent, any tax already paid (as stated in the NRL6 Certificate) should be included, which will reduce any final tax to be paid.  Any additional tax payment (by the landlord) or refund (by HMRC) should take place after the Self Assessment Tax Return is completed.

This brief explanation is for general knowledge only.  Please seek specialist tax advice when comes to making decision about tax.