INTM370010 - The Non-resident Landlords Scheme

Overview of the Scheme

Background

The Non-resident Landlords Scheme is a scheme for taxing the UK rental income of landlords whose usual place of abode is outside the UK ('non-resident landlords'). The underlying legislation is at ICTA88/S42A and SI1995/2902.

The Scheme began on 1 April 1996 and is the technical responsibility of the Centre for Non- Residents (CNR), which took over the role on 1 April 2001 from its predecessor FICO. Audit support is provided by the Audit and Pension Schemes Services office (APSS).

Guidance

CNR has published detailed guidance called ‘The Non-resident Landlords Scheme – Guidance notes for letting agents and tenants’. The leaflet IR140 gives an overview of the Scheme.

The notes and the leaflet are available on the Inland Revenue Internet website together with other guidance, and forms for use by landlords and letting agents.

Main points

The Scheme requires anyone in the UK who pays rent to, or collects rent for, a non-resident landlord to deduct Basic Rate tax from the rent. The people it mostly affects are letting agents, which can be anyone from a professional letting company to a friend or relative appointed by the non-resident landlord. The Scheme applies to letting agents regardless of the amount of the rent involved. If the non-resident landlord does not have a letting agent, his tenant must deduct the tax – but only if the rent is more than £100 a week.

Before calculating the tax, the letting agent/tenant takes off deductible expenses (see Chapter 10 of the Non-resident Landlords Scheme – Guidance Notes for Letting Agents and Tenants). These are broadly the same, but not as numerous, as the allowable expenses for Schedule A purposes.

The Scheme allows non-resident landlords to apply to us to have their UK rent paid to them gross. We approve such applications on the understanding that the non-resident landlords will self assess at the end of the year to determine whether they have any liability on the rent. Our approval to receive rent gross does not mean that the rent is exempt income in the hands of a non-resident landlord, who must therefore include the rent in any tax return the Inland Revenue sends them.

The requirement on the part of letting agents and/or tenants to deduct tax does not apply to non- resident landlords who have successfully obtained Inland Revenue approval to have their UK rent paid to them gross. We write to the letting agents/tenants of gross-approved non-resident landlords to tell them that they may pay rent without deducting tax.