What is the Non Resident Landlord Scheme for Central London Landlords?

If you have been living outside the UK for more than six months in any tax year and earn rental income in the UK, you must register with HMRC, even if you are a UK citizen.

Prime central London areas such as Kensington, Chelsea and Camden are property investment hotspots for non-residents, so if you own a property here, you’ll need to make sure that you’re meeting your tax obligations.

Did you know you are classed as a non-resident landlord if you live outside the UK but let a property here and must register under the NRLS? If you do not, your letting agents or tenants must withhold 20% of the rent and pay this to HMRC.

If you rent out property in the UK but live abroad for more than six months a year, our guide to the Non-Resident Landlord Scheme (NRLS) will help you understand your tax liabilities.

What is the Non-Resident Landlord Scheme & How Does It Work?

The Non-Resident Landlord Scheme (NRLS) was introduced to help ensure that rental income tax is paid to HMRC when the landlord’s usual place of abode is outside of the UK.

HMRC’s definition of a non-residential landlord is a someone who has UK rental income and whose usual place of abode is outside of the UK (living outside of the UK for six months or more of the year).

Rental income from UK property is taxable in the UK, even if income is subject to tax in another country. Historically, it was difficult for HMRC to identify landlords living outside of the UK, so the NRLS was set up to tax rental income before it leaves the UK.

Under the scheme, letting agents are legally obliged to withhold tax before paying rent to the landlord. If there is no letting agent, this obligation falls on the tenants. The relevant amount of tax must then be paid to HMRC every three months by the agent or tenant.

Want to know more? Explore rental income tax and how to reduce capital gains tax on property.

Non-resident landlords are required by law to file a self-assessment tax return and the tax paid by the agent or tenant can be deducted from the landlord’s tax liability.

In some cases, non-resident landlords can apply to receive the gross income instead of being taxed at the source under the NRLS. To be eligible for this, landlords must meet the following conditions:

• UK tax affairs must be up to date, or you had no tax obligations and;
• You are not expected to have any UK tax liabilities for the year in which the application is made.

To apply to receive the gross rent, individuals can use the NRL1 form and companies use NRL2.

Who is classed as a non-resident landlord?

If you receive income from rent paid for property in the UK and spend more than six months in every tax year living abroad, you are classed as a non-resident landlord for tax purposes. HMRC defines a non-resident landlord as someone who has UK rental income and whose ‘usual place of abode’ is outside the UK.

It is possible for individuals to be classed as a resident in the UK but if they are absent from the UK for a period of over six months in one year, their usual place of abode will be regarded as outside of the UK.

Companies with a main office outside of the UK or that were incorporated outside of the UK will also be regarded as having a usual place of abode outside of the UK for rental income tax purposes.

We come across many overseas landlords who believe that because they are declaring their rental income from UK property in the country where they are a tax-resident, they do not need to pay UK income tax. This is not the case, and they must meet their UK tax obligations and pay the amount of tax due to HMRC.

These tax rules also apply to members of the HM Armed Forces and other crown servants who receive rental income in the UK but live outside of the UK for more than six months of the year.

Options for paying tax as a non-resident landlord

There are two options for paying tax as a non-resident landlord:

1. The letting agents or tenant deducts the tax at source and makes the required payments to HMRC on a quarterly basis.
2. Non-resident landlords can register to receive their rental income gross by completing form NRL1. This does not mean that the income is tax-exempt, but that the landlord has agreed to settle the tax bill themselves. This is only an option if the following criteria is met:
   • Your UK tax affairs are up to date, or you had no tax obligations and
   • You are not expected to have any UK tax liabilities for the year in which the application is made

Individuals receiving income from UK property are also obligated to file a UK Self-Assessment Tax Return, sometimes called an annual return.

If your letting agent or tenant has deducted tax from your rental income under the Non-Resident Landlord Scheme, this will be detailed in your tax return and offset against your tax liability.

Another important requirement is that joint owners of properties, such as spouses or partnerships, must register with HMRC individually.

Pros & cons of the NRLS scheme

The NRLS is a legal requirement and not an option as such, but some landlords may choose to apply to receive the rent gross if they meet the specified conditions.

These are the pros and cons of applying for this through the NRL1 form:

Pros

• Avoid overpaying on tax. You can deduct expenses and personal allowances from the tax you pay, rather than a 20% tax being applied and then claiming overpaid tax back.
• More financial control. You are responsible for tax payments yourself rather than the agent or tenant.
• Save on agent fees and remove responsibility from tenants. If your agent pays tax on your behalf, they will usually charge for the service. Equally, tenants will not want to deal with the hassle of making tax payments to HMRC.

Cons

• You will need to ensure that you meet the criteria.
• You’ll have to complete the NRL1 form and it can take around 30 days to be processed.

Do non-resident landlords get a personal tax allowance?

Yes, non-residential landlords who receive rent for a property are subject to UK income tax rules, which includes a personal allowance. For the tax years 2024/25 and 2025/26, the standard personal allowance is £12,570. Also, the first £1,000 of rental income is tax-free.

How much tax do I pay as a non-resident landlord?

Non-residential landlords must pay the following tax rates for the tax years 2024/25 and 2025/26 when taxable income (after deducting allowable expenses paid) is over £12,570:

• 20% for rental income of £12,570 to £50,270
• 40% for rental income of £50,271 to £125,140
• 45% for rental income of £125,141 and above

Landlords who operate a limited company will be liable to pay corporation tax rather than the tax rates applicable under the personal allowance. The corporation tax for the tax years from April 2023 onwards is 25%, unless the company has profits under £50,000, which has a corporate tax rate of 19%.

If you are taxed on your UK property income in a foreign country, you may end up paying tax in two countries for the same income. You will need to claim a credit in the country where you live against the tax paid in the UK.

Want to find out more? Discover the best buy-to-let areas in London and how to start a property portfolio.

What is treated as rental income for NRLS purposes?

Rental income is defined as any income generated from letting furnished or unfurnished premises. It includes income where tenants are charged for use of furniture, and also includes grants received from local authorities for property repairs and insurance recoveries paid to landlords for non-payment of rent.

How is non resident landlord tax paid?

There are different options for the payment of rent, depending upon whether you use a letting agent or deal with the tenant directly.

Non-resident landlord tax without a letting agent

Where monthly rent of more than £100 a week in rent is paid directly to a landlord who lives abroad, the tenant must register with HMRC for the Non-Resident Landlord Scheme. Tenants should also register if they pay the rent to a landlord’s UK-based representative who is not a letting agent.

HMRC will inform tenants whether they need to deduct tax from their rent. If they are required to withhold tax, they must do so at a rate of 20%. The tax deducted is payable to HMRC quarterly at the end of June, September, December and March. Tenants must provide their landlord with a certificate of tax liability on form NRL6 each year (by 5th July).

Even if tenants don’t need to deduct tax, they may still need to complete an annual report for HMRC (by 5th July).

How do tenants confirm whether you’re a non-resident?

To be considered a non-resident landlord for tax purposes, the landlord will have a usual place of abode outside of the UK. Landlords who provide PO Box numbers and ‘care of’ addresses could live outside the UK. In these cases, tenants should request more information from the landlord, and they can contact HMRC for further advice if they are unsure of their responsibilities.

What if you jointly own the property with another landlord?

When there is more than one landlord, as the property is jointly owned, the £100 per week threshold applies to each landlord. If the tenant’s weekly payment to each landlord is below £100, it is below the NRLS threshold. However, if they pay more than £100 to each landlord weekly, they must register with the NRLS and deduct the tax due to HMRC from the rent.

What if more than one tenant pays rent at the property?

The £100 threshold applies to each tenant, so if their weekly rental payment is less than £100 each, this will fall below the NRLS threshold. However, if each tenant pays over £100 per week, they would need to separately register for NRLS and deduct the tax from their rental payment to pay the tax to HMRC.

Non-resident landlord tax using a letting agent

All letting agents who collect rent for non-resident landlords should be registered with HMRC for the Non-Resident Landlord Scheme.

Letting agents must withhold tax on all rents collected for a non-resident landlord (there is no £100 threshold) unless HMRC has said the landlord can receive their gross rent.

We can help

The non-resident landlord scheme can seem confusing. If you require further clarification, we are always here to help and cover central London areas including Hampstead, Hyde Park and Mayfair.

We can assist with working out your deductible expenses, understanding your responsibilities as a landlord, and any queries you have about your tax obligations for UK rental income as an overseas landlord.

Our property experts ensure they stay up-to-date with the law and tax regulations and can guide you through the process, ensuring that you fulfil your tax liabilities in the UK. Contact us today.

*This article is intended for informational purposes only and does not constitute legal or financial advice.

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