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If you spend time abroad, you could unwittingly become a non-resident landlord subject to additional tax rules.
A non-resident landlord is not what most people suspect - someone living outside the UK permanently.
Under the Non-Resident Landlord Scheme, you are a non-resident if where you usually live is outside the UK for six months or more.
A usual place of abode is somewhere you live for at least six months, according to the HM Revenue & Customs Non-Resident Landlord Scheme (NRLS). Tax residence is not considered, just where you have lived during the tax year.
Under NRLS rules, a landlord can simultaneously be a UK tax resident and a non-resident landlord. So, a landlord spending their 180-day rolling visa limit staying at a second home in a European Union country might also be a non-resident landlord.
NRLS applies to married couples who jointly own property in the UK and have a usual abode overseas. Each spouse is treated as an individual for tax.
As a non-resident landlord, if you want your rent paid with no tax deducted, you must apply to join the NRLS.
Tenants and letting agents can only pay rent without tax deducted to a landlord with authorisation in writing from HMRC. This applies even if the landlords jointly own the property and only one has HMRC authorisation. If only one lives outside the UK, only their share of the rent is under NRLS rules. HMRC orders tenants and letting agents deduct basic rate income tax if a landlord has no certification from HMRC.
The NRLS umbrella also catches the armed forces, and civil service members posted overseas although retaining UK tax residence.
HMRC expects where a landlord lives to be clear without making any special inquiries. If a landlord’s home is uncertain, the tenant or letting agent should quiz the landlord for more information.
PO boxes and ‘care of’ addresses are considered suspicious and trigger more inquiries. Tenants or letting agents uncertain of where their landlord lives should contact HMRC.
The NRLS tax year starts on April 1 and runs until the following March 31. If a tenant or letting agent deducts tax, they must account for the money by filing a return at the end of each quarter, starting from June 30. They must account for any rental income due to the landlord, less allowable business expenses.
If paid to a third party, like a landlord’s friend or relative, the money is still included. The filing should show how much basic rate income tax the landlord should pay, and the amount should be paid to HMRC as instructed.
Landlords not wanting tax deduction at source can apply for permission to deal with their rental profits by self-assessment if their UK tax returns are up to date, or if they have never paid UK tax or do not expect to pay UK tax for the year the application covers. Find out more about the Non-Resident Landlord Scheme
The NRLS is an aggregate time away for the year, not a single period without any gaps. So, landlords who have spent 180 days outside the UK in the NRLS year should join the scheme.
Letting agents must deduct basic rate tax from any NRLS payments. However, tenants paying less than £100 a week are exempt.
Unless HMRC says otherwise, landlords should file a self-assessment return detailing their annual rental income and expenses. You cannot file the return online unless you have commercial tax software. If not, post a paper copy. Paper filings have an earlier deadline than January 31. The tax office should receive them by October 31 or three months after the date of the notice requesting the return if that’s later than October 31.
Companies are non-resident landlords if they let property in the UK and either the main office or business premises is overseas or the business is incorporated outside the UK.
Landlords can apply to join the NRLS online or post by completing Form NRL1. Applying does not mean NRLS approval from HMRC - the tax office will write to you confirming you have joined.