The Non-resident Landlord Scheme

If you have rental property in the UK but your usual home is outside the UK, your tenants or the letting agents you use will need to operate the Non-resident Landlord (NRL) Scheme. They need to deduct basic rate tax from rental income before they pass it onto you. You can set this tax off against your own tax bill at the end of the year.

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The Non-Resident Landlords (NRL) Scheme is a scheme for taxing the UK rental income of non-resident landlords.

The scheme requires UK letting agents to deduct basic rate tax from any rent they collect for non-resident landlords. If non-resident landlords don't have UK letting agents acting for them, and the rent is more than £100 a week, their tenants must deduct the tax. When working out the amount to tax the letting agent/tenant can take off deductible expenses.

Letting agents and/or tenants don't have to deduct tax if HM Revenue & Customs (HMRC) tells them not to HMRC will tell an agent/tenant not to deduct tax if non-resident landlords have successfully applied for approval to receive rents with no tax deducted. But even though the rent may be paid with no tax deducted, it remains liable to UK tax. So non-resident landlords must include it in any tax return HMRC sends them.

Applications by non-resident landlords for approval to receive rent with no tax deducted

Non-resident landlords who are eligible can apply at any time for approval to receive their UK rental income with no tax deducted. This includes applying before they have left the UK or before the letting has started.

Applications should be made by:

  • an individual NRL1i notes are incorporated
  • a company NRL2i notes are incorporated
  • a trust NRL3i
  • letter for sovereign immunes

Completed NRL applications should be sent to:

HMRC Personal Tax International
NRL Scheme Compliance S0708
PO Box 203
Bootle
L69 9AP

For individuals whose tax affairs are dealt with Public Departments 1 office the NRL1 should be sent to:

HM Revenue & Customs
Public Departments 1
Ty Glas Road
Llanishen
Cardiff
CF14 5XZ

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What happens when approval is refused/withdrawn?

Refusal of approval

HMRC may refuse approval if it is not satisfied that:

  • the information in the application is correct
  • the non-resident landlord will comply with their UK tax obligations

Withdrawal of approval

HMRC may withdraw approval if:

  • it is no longer satisfied that the information in the application is correct
  • it is no longer satisfied that the non-resident landlord will comply with their UK tax obligations
  • the non-resident landlord fails to supply information requested by HMRC

How can I appeal?

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What is the relationship to Self Assessment?

HMRC will tell an agent/tenant not to deduct tax if the non-resident landlord has successfully applied for approval to receive rents with no tax deducted. But rent paid with no tax deducted remains liable to UK tax. So non-resident landlords must include it in any tax return HMRC sends them.

All non-resident landlords who receive rents with no tax deducted will have an HMRC office that deals with their tax.

Some individuals who are not resident in the UK are not sent an annual tax return automatically, even though they have UK rental income. This is because many non-residents will have sufficient UK personal allowances to cover any liability.

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Who are letting agents?

A letting agent is a person who:

  • has a 'usual place of abode' in the UK
  • acts for a non-resident landlord in the running of their UK rental business
  • has the power to receive income of the non-resident landlord's rental business, or has control over the direction of that income
  • is not an 'excluded person'

An excluded person is someone whose activity on behalf of a non-resident landlord is confined to providing legal advice/services. However, solicitors who draw up a lease and collect the rent for the first period are not excluded persons.

HMRC has produced a booklet called Non-Resident Landlords - guidance notes for letting agents and tenants that tells people what their responsibilities are under the scheme. In addition, there is a brief Letting agent's guide to the NRL Scheme which outlines the main features of the scheme.

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Which tenants have to operate the NRL Scheme?

Tenants of non-resident landlords have to operate the scheme if:

  • the rent they pay is over £100 a week

and either:

  • they pay the rent direct to a non-resident landlord
  • they pay the rent to a person outside the UK
  • they pay the rent to a person who is not a letting agent in the UK

HMRC may sometimes instruct tenants to operate the scheme even where the rent paid is less than £100 a week.

HMRC has produced a booklet called Non-Resident Landlords-guidance notes for letting agents and tenants that tells people what their responsibilities are under the scheme.

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HM Armed Forces personnel and other Crown Servants

The NRL Scheme applies to members of HM Armed Forces and other Crown Servants - for example, diplomats - if they have a 'usual place of abode' outside the UK. They are treated no differently from any other non-resident landlords, even though their employment duties overseas are treated as performed in the UK for the purpose of charging their salaries to tax. So if their absence from the UK is for more than six months, they are within the scheme.

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Administration of the NRL Scheme

The NRL Scheme is administered by HMRC PT International. Tax is collected by HMRC Banking.

HMRC has produced a booklet called Non-Resident Landlords - guidance notes for letting agents and tenants. This tells people what their responsibilities under the scheme are. In addition, there is a brief letting agent's guide to the NRL Scheme which outlines the main features of the scheme.

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Who are non-resident landlords?

Non-resident landlords are persons (this term includes individuals, companies and trustees) who have:

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Conditions for applying to HMRC for approval to receive rental income with no tax deducted

Non-resident landlords can apply to receive their rent with no tax deducted on the basis that either:

  • their UK tax affairs are up to date
  • they have not had any UK tax obligations before they applied
  • they do not expect to be liable to UK Income Tax for the year in which they apply
  • they are not liable to pay UK tax because they are sovereign immunes (these are generally foreign Heads of State, Governments or Government departments)

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What happens when approval is given?

When approval has been given, HMRC sends:

  • a notice of approval to receive rent with no tax deducted to the non-resident landlord
  • a separate notice to the letting agents or tenants named on the application form authorising them to pay rent to the non-resident landlord without deducting tax

Authority to pay rent to a non-resident landlord with no tax deducted is generally backdated to the beginning of the quarter in which HMRC receives the non-resident landlord's application. As the tax year for the NRL Scheme starts on 1 April, the quarters are the three-month periods that end on 30 June, 30 September, 31 December and 31 March. So if a non-resident landlord applies to HMRC on, say, 20 September, the authority HMRC send to his letting agent/tenant will usually take effect from 1 July.

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'Usual place of abode'

Although HMRC refer to 'non-resident' landlords, it is usual place of abode and not non-residence that determines whether a landlord is within the scheme or not.

In the case of individuals, HMRC normally regard an absence from the UK of six months or more as meaning that a person has a usual place of abode outside the UK. It is therefore possible for a person to be resident in the UK yet, for the purposes of the scheme, to have a usual place of abode outside the UK.

Where can I get more help?

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Forms, booklets and leaflets

You can obtain:

General forms

These forms are in PDF format. To view or to download blank forms for future use, you need Adobe Reader.

Return form

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Which HMRC office deals with applications and registrations under the scheme?

For help and advice about the NRL Scheme you can contact HMRC PT International by telephone.

Non-resident landlords, who are applying for approval to have rents paid without deduction of tax should send their applications to HMRC at the address stated within this section.

Which HMRC office deals with a non-resident landlord?

Non-resident landlords who receive rents with no tax deducted will have an HMRC office who deals with them. These are:

For non-resident companies:

HMRC Personal Tax International
Operations, S0708
PO Box 203
Bootle
L69 9AP

Telephone: 03000 516644 or 516651 (from the UK)
Telephone: +44 3000 516644 or 516651 (from abroad)
Fax: 03000 547381

or non-resident trusts:

HM Revenue & Customs
Trusts & Estates
Non Resident Trusts
Ferrers House
Castle Meadow Road
Nottingham
NG2 1BB

Telephone: 0300 123 1072 (from the UK)
Telephone: + 44 115 974 3009 (from abroad)

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Which HMRC office deals with individuals who are non-resident landlords?

The HMRC office dealing with the non-resident landlords scheme is:

HMRC Personal Tax International
Operations, S0708
PO Box 203
Bootle
L69 9AP

Telephone: 03000 516644 or 516651 (from the UK)
Telephone: +44 3000 516644 or 516651 (from abroad)
Fax: 03000 547381

For individuals whose tax affairs are handled by Public Department 1 office contact:

HM Revenue & Customs
Public Department 1
Ty Glas Road
Llanishen
Cardiff
CF14 5XZ
Tel: 029 20 325048
Fax: 029 20 325954

For all other individuals contact us.

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How to contact HMRC Banking

Quarterly returns and payments of tax due under the NRL Scheme, made using form NRLQ should be sent to:

HMRC Banking
Bradford
BD98 1YY

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Issuing form NRLY

Form NRLY is normally sent to letting agents in May each year. You can also ask the Customer Operations Unit to send you one.

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Appeals against refusal or withdrawal of approval to receive rent with no tax deducted

Where HMRC refuses, or withdraws, approval to receive rent with no tax deducted, the non-resident landlord can appeal to HMRC within 90 days.

Where HMRC and the non-resident landlord cannot reach agreement, the appeal will be referred to an independent appeal tribunal.

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Letting agents' obligations

Letting agents that have to operate the NRL Scheme must:

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Monitoring compliance with the NRL Scheme

NRL Compliance carry out compliance reviews from time to time to check that letting agents have complied with their obligations under the NRL Scheme.

A key aspect of the inspection involves checking records held by the letting agent.

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Tenants' obligations

Tenants who have to operate the NRL Scheme have to:

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How letting agents and tenants calculate and account for tax

Tax under the NRL Scheme is deducted by letting agents/tenants.

Letting agents/tenants must calculate the amount to tax each quarter.

They then need to apply the basic rate to arrive at the amount of tax due.

They pay the tax to HMRC Banking, using the quarterly payslip form NRLQ.

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How letting agents/tenants calculate the amount to tax

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Deductible expenses

Letting agents or tenants must generally tax the rental income they pay to non-resident landlords unless HMRC has told them not to. In calculating the amount to tax, they take into account any 'deductible expenses' they pay in a quarter. These are expenses that they can reasonably be satisfied will be allowable expenses for the non-resident landlords when the profits of their rental businesses are computed.

Please see the Property Income Manual for advice on allowable expenses.

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Annual returns

Letting agents who have to operate the NRL Scheme must send an information return on form NRLY to Customer Operations by 5 July following the year ended 31 March for which the return is made. Letting agents must show separately for each non-resident landlord (other than those gross-approved by Public Department 1):

  • the landlord's name and address
  • the amount of rental income for the year to 31 March, before the deduction of expenses
  • where the letting agent is not authorised to pay rental income to the landlord with no tax deducted
  • the deductible expenses for the year to 31 March
  • the total of the tax shown as payable in the letting agent's quarterly returns for the year to 31 March
  • where the letting agent is authorised to pay rental income to the landlord with no tax deducted, the landlord's approval reference number given by HMRC (authorities issued by Public Department 1 do not have approval reference numbers, and there is no need for such landlords to be included on the form NRLY)

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Quarterly returns

Letting agents and tenants must pay the tax due each quarter under the NRL Scheme using form NRLQ. Quarterly returns are due for the periods ending 30 June, 30 September, 31 December and 31 March.

Form NRLQ will normally be issued automatically by:

HMRC Personal Tax International
Operations, S0708
PO Box 203
Bootle
L69 9AP

Letting agents and tenants must enter on form NRLQ:

  • the quarter to which the return form relates (where this date has not been pre-printed on the form)
  • the total amount of tax due in respect of all their non-resident landlords for that quarter
  • where there is no tax due in the quarter but the letting agent is due a repayment the amount of the repayment claimed

Letting agents and tenants should send the completed form NRLQ and payment for the amount due to HMRC Banking in time to arrive there no later than 30 days after the end of the quarter to which it relates. For example, the form NRLQ for the quarter to 30 September 2014 must arrive at the HMRC Banking by 30 October 2014.

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Records

Letting agents and tenants must keep adequate records to satisfy NRL Compliance that they have complied with their obligations under the scheme. In particular, for each non-resident landlord, letting agents and tenants should keep separately:

  • a record of rental income received by the letting agent or paid by the tenant (showing the date and amount of each receipt or payment)
  • copies of any correspondence with the landlord regarding their usual place of abode
  • unless the letting agent is authorised to pay rental income with no tax deducted
  • a record of expenses paid (showing the date and amount of each payment and a brief description of the expense)
  • invoices and receipts (or copies) to provide evidence of expenses paid

Letting agents and tenants should retain records for six years after the end of the year to 31 March to which they relate.

Records may be retained on microfilm, microfiche or any other medium which preserves an exact copy of the original document. Letting agents and tenants who wish to retain documents in this way should contact HMRC PT International before destroying the originals.

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Assessments

Under the NRL Scheme, tax is payable by letting agents and tenants without the need for HMRC to make tax assessments. But where HMRC have reason to believe that:

  • an amount should have been paid but was not
  • a quarterly return is incorrect

it can make an assessment.

When an assessment is made, the letting agent or tenant will be told how they can appeal. Appeals have to be made in writing to NRL Compliance within thirty days of the date of the assessment.

Interest is due on amounts paid late. HMRC Banking may charge interest on assessed Income Tax from the date when the amount of tax became due until the date it is paid.

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How do letting agents register with HMRC PT International?

Letting agents who have to operate the NRL Scheme must register with HMRC PT International within 30 days of the date on which they are first required to operate the scheme.

Letting agents may register by completing form NRL4i and sending it to HMRC. HMRC will send the letting agent a registration number and the appropriate forms and information needed to operate the scheme.

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Basic rate of tax

The basic rate of tax for each tax year can be found in the Rates and Allowances section

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Forms and notes available to download

All of these forms are in PDF format. To view a PDF document you must have Adobe Reader installed on your machine. If you require this material in large print or Braille please contact HMRC. To save a file to your hard drive, right click on the link and choose the save option.

Form

Title

Guidance notes (PDF 245K)

The Non-Resident Landlords Scheme - Guidance Notes for Letting Agents and Tenants
These notes give detailed guidance for letting agents and tenants on how to operate the Non-Resident Landlords Scheme.

NRLY (PDF 56K)

NRLY Annual Return
This is an information return that letting agents, and certain tenants, have to make.

NRLY cont (PDF 12.3K)

NRLY Continuation Sheet
This can be used where there is not enough space on the form NRLY itself.

NRLY notes (PDF 517K)

NRLY Notes for Completion
This gives information on how to complete the form NRLY.

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How letting agents and tenants calculate the amount to tax

When calculating the amount to tax, letting agents/tenants should:

  • add together the rent they actually receive in the quarter

plus

  • any rent that they had the power to receive
  • any rent paid away at their direction to another person

less

  • any deductible expenses that they paid in the quarter
  • any deductible expenses that were paid away in the quarter at their direction by another person

It is the date letting agents/tenants actually receive/pay the rents (or pay the deductible expenses) that determines when they calculate tax. The periods for which the rents (or expenses) are due are not relevant.

How do letting agents account for tax?

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Allowable expenses of a rental business

Broadly, in calculating the profits of a rental business, expenses are allowable where:

  • they are incurred wholly and exclusively for the purposes of the rental business
  • they are not of a 'capital' nature

Information about what constitutes an expense of a 'capital' nature is provided in The Property Income Manual. For example, the cost of land and buildings and the cost of improvements and alterations is expenditure of a capital nature.

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Examples of expenses which are allowable

Expenses paid by letting agents and tenants which will normally be allowable expenses are:

  • accountancy expenses for the rental business
  • advertising costs of attracting new tenants
  • cleaning
  • costs of rent collection
  • Council Tax while the property is vacant but available for letting
  • gardening
  • ground rent
  • insurance on buildings and contents
  • interest paid on loans to buy land or property
  • interest paid on loans to build or improve premises
  • legal and professional fees
  • maintenance charges made by freeholders, or superior leaseholders, of leasehold property
  • maintenance contracts (for example gas servicing)
  • provision of services (for example gas, electricity, hot water)
  • rates
  • repairs which are not significant improvements to the property, including: mending broken windows, doors, furniture, cookers, lifts, etc painting and decorating replacing roof slates, flashing and gutters
  • water rates

Some expenses which are not allowable expenses

Letting agents and tenants can deduct only those expenses which they pay or which are paid on their direction. This means they cannot deduct:

  • expenses which the landlord pays, even if they have details of the expenses
  • expenses which have accrued in a quarter but which have not been paid in the quarter
  • capital allowances
  • any personal allowances due to the landlord

Information Bulletins for lettings agents and tenants

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